Why Do We Have To Invest in Stocks?

In one occasion, I once said that if you are still in doubt with the direction of Jakarta Composite Index (JCI), especially since the market is still quiet from the sentiment, then you can just wait outside aka hold the cash, so your portfolio will be safe from the possibility of a certain negative sentiment within the next two or three months that could drag down the JCI (thus your stock dropped), but on the other hand you might miss the opportunity to buy your stocks at good price if it turns out that the JCI immediately move up. At the end, nobody could predict the market, right? Especially in the short term like that.

However, what we will discuss here is not about the JCI.

Now look at the sentence above once again: If you are in a position of holding a stock, then you will probably suffer losses if it goes down. But if you decided to hold your cash, then you can still suffer losses, ie if the stocks rise so consequently you lose some gains that you should earn in case you actually bought the stock. So whether you decided to hold cash or buying stocks, it is equally risky. If you hold stocks worth US$ 10,000, for example, then you could suffer a loss of US$ 1,000 if the stock dropped 10%, not including trading fee.

But if you hold cash worth US$ 10,000, then you can lose as well! Ie if your stock gained 10% and you should be earning profit of US$ 1,000, but instead you do not get any profit because you has decided not to buy the stock.

So I remember, I often receive questions which is more or less like this, ‘Dear Sir, I am very interested to invest in stocks, and I've read your blog since a year ago or two. But until now I have not open a trading account, because I am afraid of losses. I do not want to lose any money, sir, so please advise.’

For me, the above question sounds like, ‘Dear Sir, I want to be a boxer, but I do not want to be hit. So can you ask my opponent to just stand up still? So I can punch him repeatedly until he collapsed..’ Well, are you crazy??

Now listen, ‘loss’ is already a daily breakfast for stock investors, whoever he or she is including me, or even Warren Buffett. It is definitely a lie if some people claimed that they always make money from stocks without ever suffer a loss. A professional fund manager who has decades of experience may be able to generate consistent profits from year to year, but surely there are always stocks that he sells in a loss position, whether it was because of force majeure, because the JCI was down, or simply because of wrong decision (in buying or selling stocks, you can’t expect to be always right), but that does not matter as long as the other stocks move up as expected.

While for the beginner, then the story is different: You are still learn how to read company’s financial statements. You still have many unanswered questions due to lack of experience. And you still can not control your emotions, still easy to get panic and can not get away from your phone screen every minute from 9 am to 4 pm to watch at the movement of stocks that you own (and become upset when your stocks are dropped, whereas the stocks that you didn’t buy skyrocketed). In such conditions, you buy stocks, then how will the results? You know the answer: It is very likely that you will suffer losses, especially if you buy stocks without sufficient knowledge about the company or even without analysis at all. And indeed, any investor will almost certainly lose some of his capital in the first 1 – 2 years. But as long as he willing to survive, learn, and gather the experience, he will be able to profit in the third or fourth year, and finally he will be able to profit consistently in the fifth year and beyond.

So if you want to invest in stock but you ‘do not want to lose’, then go back to your bed, and put your money under the pillow. Because if you invest in stocks, you will lose. But also keep in mind: When you keep your money in the bank account, then you may laugh at your ‘foolish’ friends who try to invest in stocks but, after a year, instead of making big money, he lose so much that he’s not able to walking tall, while your money remains intact. But after two, three, four, five years.. without you realize, it turns out that your friend has gained so much from his investment activities, while the value of your savings has not increased at all, even actually decreased because of inflation.

Then who’s laughing now???

So why do we have to invest, in this case by buying stocks? Yes of course, to not become ‘loser’ like the example above. We have to invest so we can make profit, so our capital will grow, and even you can be rich someday, and we cannot do that if we kept our money in the piggy bank. There is nothing to be afraid from suffering losses in stock. What to be feared is that we never make a profit and our assets never grow, because we never invest.

So if you are interested to invest in stocks, then go ahead, open an account and start buying stocks, do not hesitate anymore. By starting to invest, you may (or will surely) suffer a loss at the beginning, but on the other hand you will have the opportunity to generate fantastic profits, and to become a world class investor someday. While if you just keep watching from outside, then although it seems that you will never lose any money from the market, but in fact you already suffer a big loss because you will never make any profit. As an Italian mafioso once said (as I heard from the Mafia II video game on Playstation), ‘He who takes too much risks will lose everything. But he who never take risks will achieve nothing.’

And if I may add, ‘And he who takes risks with careful analysis and wisdom, will achieve everything!’

Original articles was written and published in Indonesian language in January 15, 2017. Any inquiries? Please contact the author by email, teguh.idx@gmail.com