The Four Steps To Getting Super Wealthy in the Stock Market

The stock market is not a casino.  It's a place to buy ownership stakes in companies.  If you think of it like that it makes it a bit easier to grasp that you're not just buying pieces of paper. For instance, Johnson & Johnson is made up of 2.7 billion shares.  If you buy 100 shares of JNJ you own 100/2.7 billion of the company.  As such, your portion of the $16.5 billion in profits they made last year is $785.  That ownership stake also entitles you to a portion of their quarterly dividend payment.  A dividend is the portion of the profits the company's management decides to share with the owners.  You will receive $325 for every 100 shares of JNJ you own this year.  

So, knowing that, how do we get wealthy in the stock market?  It really boils down to this:

  1. You must concetrate your stock market purchases on high-quality companies.  These are companies that constantly grow their earnings regardless of how the overall economy is performing and don't rely on an overabundance of debt.
  2. Once you've identified a great company you have to patiently wait to buy it at a fair price.  Most of the great US companies are overvalued at the present time, in my opinion. But not all of them.
  3. Don't sell.  Just take sell out of your vocabulary.  Never sell a great company.  You will almost surely end up regretting it.
  4. Give it time.  You can take a modest sum and turn it into a massive fortune if you have enough decades to let your company's earnings compound.  It often takes 25-40 years for the miracle of compounding to produce truly outstanding investment results.

There are no short cuts.  You'll waste your precious time and money trying to trade your way to riches and you'll end up with nothing but regrets if you start playing with options.  Just buy great companies at good prices, hold onto them for dear life and let the companies themselves do the hard work of growing their earnings.  The price of the stock reflects the earnings power of the company you own.

Disclosure:  Long JNJ

United Airlines - Giving Capitalism a Bad Name

Running an airline is extraordinarily complex, challenging, expensive and unrewarding.  I know, I used to work for an airline many years ago.  We once counted the number of people doing different jobs, who met an airplane every time it landed at our hub.  It was something like 20...you had gate agents, cleaners, baggage handlers, caterers, wheelchair pushers, flaggers, maintenance, fuelers and on and on it went.  That makes for an extraordinarily complex business.  Moreover, you have maintenance issues, weather problems, an antiquated air traffic control system, pilots/flight attendants calling in sick, irritated passengers, flight crew timing-out and over-bookings. Oh yes, the over-bookings.

The airline industry somehow thinks it's ok to sell you a ticket, take your money then not allow you to travel.  It's a truly lopsided arrangement because they have all the power and it is often abused by the airline.  What happened on United plays out thousands of times a day.  They just ran into a passenger who, for whatever reason, said F-U to United.  Then United calls in the goons and turns this into a complete PR nightmare.  To somehow make matters even worse, the buffoon CEO of United says exactly the wrong thing.

I frankly think the airline industry is pretty amazing.  You can fly around the world for hundreds of dollars if you wait for a good deal and go to places our ancestors couldn't have imagined. However, this mixture of greed (overselling seats), lack of competition, terrible airports, government incompetence (outdated air traffic control), TSA nonsense, thoughtless policies (capping the amount you offer to force someone to not take the flight they paid for) and indifferent employees is a devilish mixture.  

If we had a true Capitalist airline industry, the airports would be privatized (as they are in Mexico, New Zealand and many parts of Asia and Europe), there would be many more seats for sale (due to more competition) and the airlines would actually have to compete on customer service and value to get your business.  

Capitalism is far from the problem with the airline industry.  The real problem is a mixture of government regulation that allows the Big Four airlines to provide crappy service that you and I are forced to accept, an unbelievably complex operation and government incompetence that nearly ensures our flights can't go in and out of airports smoothly and on-time.  

What will come from all this?  I can just about guarantee more government regulation to "help" solve the problem they helped cause in the first place.  It will only make it worse.