There’s something about capital markets that captivates everyone: Some think stocks are an easy way to make a quick score. Others, on other hand, liken stock to gambling.
And then there are some who just don’t have a clue about stocks at all.
(Fret not, #WealthGANG, we’re here to serve!)
But why is the stock market so fascinating? What causes people to be completely overawed by it?
Despite the many myths, it is extremely easy to trade in the markets; you can actually get started on your smartphone for less than $10.
But to trade stocks successfully? Now that’s another story—despite what those in-their-20s Instagram crypto money managers and scammers want to tell you.
For all the myths, biases, (mis)beliefs and misconceptions, you can still hedge your bets by following a disciplined blueprint. In this case here, we will share with you what not to do.
Here are X common investor mistakes to avoid at all times.
Mistake #1: Thinking you can make a quick buck from Wall Street
This is probably the single biggest misconception about the stock market. Investor legends like Warren Buffett always maintain you need to invest over a long-term horizon to book big profits.
And even if you have stories like the ‘Teenage Bitcoin Millionaire,’ trust us on this one! They’re the exception, not the rule.
Mistake #2: Investing on impulse
In other words, decision to enter the stock market’s based on an impulse. There’s no proper entry strategy and no exit strategy.
This is not how an investment decision should be made. Every investor should realize that investing in the stock market is a long-term play—it’s definitely NOT a get-rich-quick scheme.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Mistake #3: Following the hot tip!
Investors are all on the lookout for hot leads and stock market tips. But in reality, there aren’t any. This mistake is exactly how the “Wolf of Wall Street”got people onboard with his schemes.
Even if someone does have a hot tip, you have to watch out for human nature: People may skew positively towards stocks they own—and negatively towards the ones they don’t.
The reality is this: There are qualified analysts who spend all day researching market trends and metrics.
Investment managers and brokers then share these analyses with premium clients. Much more credible info, yes. However even after receiving this analysis, there is no guarantee the investor will see an ROI.
Warren Buffett is a firm believer that investors can grow wealth by just replicating the indices instead of looking for multi-baggers and stocks that are expected to crush the market.
“If stock market experts were so expert, they would be buying stock, not selling advice.”
Norman Ralph Augustine
Mistake #4: “Buy/Sell Strategy”
This is probably the biggest misconception of all. Many investors, impulsively, end up buying a stock just because they see the price surging. (Again, think Bitcoin in December.)
As the price continue to climb, they’ll sell the stock and make a huge profit. The so-called Buy-Hold-Sell Strategy
But that is not how the stock market works. (Buffett’s mantra is buy-hold-and don’t watch too closely.)
If you do buy a stock, hold it for some time and then sell…you don’t have any guarantees the stock will rise.
A better play—aside from Buffett’s, obviously—is the borderline cliched “Buy Low/Sell High” strategy. In this strategy, an investor buys a stock on the downslide instead of when the price is rising.
All the investor has to do is hold the stock until a price correction occurs. If the stock is fundamentally strong, the price will increase. This will be the time to sell it off and earn a profit.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
Mistake #5: No clear investment objective
Every investor should define, clearly, what his or her investment goals are.
The rule of thumb of investing is the higher the risk, the higher the return. So if the market return is less, then—needless to say—the risk involved is deemed less.
There are two forms of securities, generally: Stocks (equity) and bonds (debt).
Equity stocks tend to have higher risks associated with them. However, there is a tremendous potential to earn capital gains from equity shares—but with the caveat that you should be prepared to lose your investment
Bonds and fixed income instruments are relatively less risky than equity shares. They offer periodic returns in the form of interest but are still prone to market risk.
A short-term investor looking for minimal risk is better off buying treasury bills and government securities.
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch
Exclusive Q&A: How These 4 College Roommates Built One Of The Top Black Wealth Channels On Instagram
It’s one of the more shocking stats that exist in America: Despite trillions in spending power, minorities are at the bottom when it comes to wealth. As of today, there’s a wealth gap that will take 228 years to close.
That said. There’s currently a movement on social media where a handful of Instagram channels provide real financial and wealth-building advice, particularly in the black community.
Ex-roommates in college, Jalen Clark, David Bellard, Jared Spiller and Kelly Rhodes started this as a passion project; they’ve since grown this 209K+ followers in about a year, with one of the most engaging audience on the ‘Gram.
In this two-part Q&A, they break down the importance of wealth building, their mission and why it’s important to make your own table.
(Editor’s note: This interview was done by WealthLAB editor-in-chief/real estate developer Philip Michael.)
Congrats on all your success. In such a short time. So tell people. What is Black Wealth Renaissance?
Jared: Black Wealth Renaissance is a movement. Our goal is to normalize the topics and conversations around wealth growth and educate African American people through education and awareness through social media.
We will educate as many people as we can reach on ways to achieve financial freedom and positive examples of people who have or are on their way to financial freedom.
David: Like Jared said, it’s a movement. We want to encourage those in our community to take action, educate themselves on finances and personal development, learn how to invest, understand the abundance of opportunity out there, and exhibit unity through practicing self love and group economics.
It’s really about embracing an abundance mindset and understanding that we can change our realities if we change our thinking.
So that’s the mission tied to the brand?
Kelly: Black Wealth Renaissance is more than just a brand; it’s part of a change in culture. We wanted to continue this movement on African Americans learning financial literacy because it’s not taught in schools.
And most parents don’t even understand some financial literacy concepts to be able to teach to their children. So we created this brand to generate a space where everyone can learn how to build generational wealth.
It’s a really cool name, too.
Jalen: Black Wealth Renaissance is more than just a catchy name or an Instagram account. We are seeing a time of enlightenment in our community—as well as culture—so we decided to highlight the positive energy and impact that is currently happening around us.
What are some of the core messages you guys are trying to push?
Jalen: We want to take away the stigma of money being the root of all evil within our community and show people how it can be a tool of empowerment and ever-lasting change.
Jalen: To sum it up BWR is a shift from asking for what we want to going out and grabbing life by the horns and taking control of your own destiny.
How did the mission come about; why did you start it?
David: The mission began really more-so as a passion project. Jared, Kelly, and I were roommates in college and this is the type of stuff we were always talking about at home.
So how did it become an actual idea?
David: The idea of creating an IG page had been something that we floated around because it was a lot of knowledge that we were gaining that we wish we had known earlier—and wanted to share it with others.
One day while having one of our many conversations on the topics of culture and finance, I told Jared, “Man, let’s just go ahead and make the page” and here we are seven months later.
Jared: The mission came about after myself and my roommates, Kelly and David, read Rich Dad, Poor Dad.
Jared: Yes. We began researching different avenues to create passive income and experimented with many different projects that we never knew would lead up to Black Wealth Renaissance.
One day, David and I were talking about different ideas and concepts we had heard from our favorite podcast and were talking about how we wanted to spread the word about financial freedom. And he told me to go ahead and start the page.
What happened next?
Jared: From there, we’ve grown as a team and continue to push towards our goal of educating as many people as possible and exposing them to various pathways to financial freedom.
Kelly: I noticed that Jared and David created a page that had some good inspirational quotes on it, but I did not fully understand what their goals were in the page.
I called them one night after I got an idea about creating a financial literacy page to help build a brand so we can start a podcast we always talked about.
They told me that was the plan of the page they already created and that they wanted me to be part of this movement.
I think the biggest thing for us growing like we did is from the beginning we focused on helping and teaching to better their financial situations that has always been—and will be—the goal.
What was your role in all this, Jalen?
Jalen: I was in the background when the page got started, but I was always there since David and I are such good friends; we’re constantly around each other, so I would hear him talking to Jared, discussing certain things and would give my input on the topics.
So it wasn’t your plan to join right away?
Eventually I couldn’t fight it because I was just as passionate about the things they were talking about and doing. Once the page started to really growing, I jumped on board and haven’t looked back.
I’ve said this publicly, my goal is to help create 100K new investors create generational wealth through real estate. What’s the goal behind your mission?
David: Short term goal is to encourage the conversation of building wealth, while providing tools and resources that can help people take actionable steps to achieve that wealth.
Long term goal is creating an education system to teach financial literacy to the black masses, providing a platform where we can come together to invest in each other’s companies.
To create economic independence in our community so that we can begin to implement the changes our people have long sought.
Instead of continually asking for it, because obviously that ain’t working. We want this to go down in history as the movement that changed the narrative of Black people in America.
Incredible. Love it.
Jared: To help people. We truly believe that through education we can change the narrative around a lot of problems and hurdles in the African American community.
Once we can change these types of conversations into everyday topics, a lot of things will change for our communities.
I always believed the number one difference between wealth in cultures is what’s discussed around the dinner table, those everyday conversions.
Jared: We just want to get the conversations around financial freedom normalized amongst the African American community.
Kelly: The goal behind Black Wealth Renaissance is to help—and teach—others how to create generational wealth. Most people would read that and think we want just everyone to have a ton of money—which is nice—but is not our specific goal.
It’s about understanding money. So many things that aren’t being taught.
Kelly: We want to have African Americans learn financial literacy so they can teach the next generation; so the learning curve for them won’t be as steep.
We also want people to be able to pass on businesses, land, real estate, etc. to the next generation, ultimately changing the financial status of not only them but their heritage.
Jalen: When I think on the mission, I think of it as “to normalize black wealth and share helpful resources and tips we believe will be useful in attaining and maintaining generational wealth.”
That’s it exactly.
Jalen: It creates an image in my head of more couples and families that look like the Carters and the Obamas.
I think instead of hearing this person is the “first black person to do such-and-such,” you’re going to hear more of this person was “the first person to ever do this.”
I always thought it was so limiting to say that.
Jalen: Right. We won’t have to compete for a spot at the table; we are creating our own table. And a spot at other tables will become an open invitation that we have the right to accept or refuse.
That’s true freedom right there.
Jalen: We want the topic of personal finance and financial education to be held and taught to the youth and elderly so it is no longer a taboo or sore subject within our community.
We want to break the social molding of “looking like money,” while struggling to pay the bills.
The mission is also deeper than creating wealth through money this mission is to become wealthy in all walks of life personal, mentality, collectively, and spiritual.
100% Immediate Expensing Won’t Help Bring Back American Jobs
As the country continues to battle the health and economic crises brought on by the Coronavirus pandemic, leaders and policymakers in Washington are considering a number of tax-related measures to hasten recovery and stimulate the economy in the wake of this generational crisis. One such proposal would expand full and immediate expensing to include structures. The popular thinking is that this measure would incentivize companies to invest in US facilities, including and especially those companies who have historically opted to offshore much of their manufacturing footprint. While this proposal is certainly well-intentioned, if enacted it would have far more negative consequences, and far fewer benefits, than many realize.
It is important to remember that the tax reforms of the 1980s tried this approach, accelerating depreciation to 15 years for real estate in an attempt to stimulate the economy. While thoughtfully considered, this measure resulted in massive overbuilding and the use of real estate as a tax shelter, a dynamic that contributed significantly to the savings and loan/real estate crisis at that time. As a result, the depreciation schedule for structures was eventually lengthened to better reflect the true useful life of a structure or real estate. While measures were put in place to try to prevent entities using the construction of buildings as a tax shelter, there are ways to get around the rules. Expanding immediate expensing to include structures today would incite the same unintended consequences the U.S. experienced in the 1980s.
Some economists continue to cite that immediate expensing of structures, to include manufacturing plants, office buildings, and commercial real estate, would contribute substantially to the growth of gross domestic product and encourage companies to return to the U.S. However, these assumptions are flawed as they do not account for the tax consequences and restrictions unique to real estate, which prevent immediate expensing for structures and buildings from yielding the same economic benefits that may result if applied to other capital expenditures.
These models also do not reflect the very real dynamics of a post-COVID-19 business environment. In the last few days, some of our country’s largest employers including Facebook and Twitter have offered their employees extended teleworking flexibility well after a phased re-opening of America begins. COVID-19 has shown that through technology, a large number of employees are capable of being highly productive working from home, providing an opportunity for companies to shed tremendous office space costs from their books, and leaving uncertainty to the future need for office space in the U.S. We cannot afford a situation where office buildings are built for tax benefit rather than market need.
Most economists’ models that demonstrate GDP growth from the inclusion of real estate in full and immediate expensing do not factor in basic real estate tax rules, such as, recapture taxes, passive loss, basis, at-risk limitation rules, or other market drivers, as well as company valuations and shareholder requirements. They also often rely on European data that does not effectively reflect U.S. economic realities. As a result, many of these models overstate both the increased investment that would result from immediate expensing, as well as the extent to which immediate expensing would incentivize U.S. companies to re-shore production lines and facilities currently located overseas.
Also of great concern is the possibility that providing immediate expensing for structures will greatly increase the incentive to utilize debt financing, which many economists believe is already too attractive. Take, for example, an investor purchasing a $10 million building with $8 million in debt financing and just $2 million in equity. Under immediate expensing, that investor would receive a $10 million tax write-off despite having only expended roughly $2 million. This is a dangerous tax loophole that could hinder the U.S. recovery from the economic fallout of COVID-19.
Finally, there is the cost. The most recent estimate conducted by the Tax Foundation found that providing full and immediate expensing for structures would cost the Treasury nearly $1 trillion over the next ten years. While many agree that repairing the damage COVID-19 has wrought to our economy will require significant and innovative government support, there are better ways to stimulate growth and encourage U.S. companies to re-shore their innovation and manufacturing capabilities that do not carry the same unintended consequences.
Fortunately, there are much stronger alternatives to bring companies and innovation back to the United states, to lessen our reliance on foreign countries, and to support small businesses in the wake of COVID-19. Allowing companies to continue to immediately expense research and development and equipment expenses, providing manufacturing facility credits to companies committed to stay in the U.S. and on-shore, developing a robust, but low risk government backed loan program to support critical next generation technology development and manufacturing in the U.S., and providing a more immediate payroll tax holiday for small businesses and individuals. These types of highly effective actions that would result in a more impactful near-term and long-term stimulus to the nation’s businesses and job opportunities for Americans.
CHART: How Blockchain Powers Bitcoin
Blockchain, Bitcoin. Bitcoin, blockchain.
The two terms go hand in hand—and have become almost ubiquitous with this year’s insane rise (and fall) of Bitcoin.
But what does it all really mean? How does it come together? In this week’s chart, our friends at CB Insights break down exactly how blockchain powers Bitcoin.
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