Are Stocks a Scam?
Stocks. You have eventually come across this word at a specific point in life.
Maybe it was a financial news section where they reported on a decline in some fancy-sounding stock codes. Perhaps because an adult told you a tragic story about how much money they lost while trading.
Or you saw a video on Youtube, read a book, and were inspired by its potential for your financial independence future.
Regardless of how you learned about it, stocks can be pretty incomprehensible at first...
One of the most common assumptions that trigger us the most is:
“Stocks are a Scam.”
So in today’s blog, I invite you to join me on this journey where we’ll uncover layers of these securities to find the answer.
# Layer 1: Why do stocks exist?
Imagine that you have been running a small shoe business for about a year. Profits are good, customers come in regularly, and you’re considering expanding your company. That way, you could begin working on new projects, opening more stores, and hiring more employees.
The problem is:
There isn’t enough money 😢
So you scrolled to the Financial Section to search for some solution, and there it lies: issuing stocks.
Offering company shares give investors ownership over a part of your business. Presume that profits are to level up shortly; it’s a win-win situation:
The investors can receive dividends and eventually sell the stocks for a profit => to build up their wealth.
Your company now has the capital needed to fund growth and upcoming plans => to boost its gain even more.
# Layer 2: Risks associated with the stock market
After owning some shares, the investors hope for the company’s growth. But the market doesn’t just simply give us what we want, does it?
So here are the two most common scenarios in which you can lose money:
You chose the wrong business
I like to think that investing in a company is like finding a partner.
If it’s a great match: Both of you will improve and build more for your own (having motivation, a push, an incentive,...). 🙌
You can then create something for both, like a house or a family, or in this case, if you own enough stocks, you can be on the board and have the right to vote for the benefit of its future.
If it’s a toxic relationship: your energy drains over time, and in the end, at least one of you will be left hurt and heartbroken. 💔
Similarly, an inadequate business won’t be able to make use of the capital from your shares. It will start to crumble, which leads to your loss of securities value when you have to sell.
After 25 years in operation (since 1996), the Vietnamese stock market has 1.900 registered companies on all three stock exchange platforms: HOSE, HNX, and UPCOM.
Can you find your “true love” within it?
2. You buy and sell at the wrong time
There’s a strategy you may hear a lot these days when dealing with stocks:
Buy low, sell high.
Because then you can earn the value difference between these two prices.
However, even Warren Buffett, probably the most prominent figure in the finance world, said that…
NO ONE could predict how the price would fluctuate the next day or week.
So if you trade stocks impulsively, especially as a beginner, your chance of losing money can get pretty high.
For example, let’s look at this VNM Stock Price and Chart by Tradingview.
At the end of April (red arrow), you decided to buy some VNM shares at 73500, hoping they would soon rise back to 81500 (green arrow) so you can make some gain in value difference.
However, you started to panic when the price only dropped in the next few weeks (yellow arrow).
“What if the price doesn’t go back?” “What if I lose ALL my money?”
Ultimately, you can wait no more and sell your shares at 66500 (orange arrow), losing about 9.5% of your original investment.
You see, although the price fluctuated back and forth a few times after that, if the company is good, its value still went up in the end. The critical question is if you have the right mindset and enough patience not to lose money.
#Layer 3: What can investing in stocks bring to you
Achieve financial freedom sooner
The interest rate in a Vietnamese bank average at 6%/ year, while the VN30 index from the beginning of 2021 to 2022 rose about 43%!
Investing in the stock market can become a passive income that constantly gives you back money through the years. In the long run, you’ll be able to save money for future plans and your retirement account.
Beat inflation
Inflation, the devaluation of money, is a risky deal nowadays, especially with wars and gas shortages coming along the way.
That’s why you could invest in the stock market, the interest rate of which could beat inflation, to avoid losing money.
Learn about local and national businesses
My brain literally became “bigger” when I started researching companies in the Vietnamese stock market.
For example, do you know the main business of the renowned Vingroup corporation?
Nope, not Vinfast, not real estate, and not shopping centers, either. The main business of Vingroup actually acts as a mother financial company. Its job is to distribute reasonable capital to the smaller subsidiaries so that these businesses can perform better and gain profits.
And believe me, there’s a sea of business and economic knowledge out there waiting for you to dive in. It could turn into significant assets for networking conversations and help you make better decisions when consuming goods.
4. Catch up with your peers
This June 2020 survey revealed that 75% of Gen Z-ers and millennials plan to invest.
To be honest, there’s no more excellent time than right now to put some money in the stock market. Technology and modernization have enabled us to invest almost anywhere, anytime, through smartphones or laptops.
You needn’t have any broker to buy shares for you, nor go through complicated procedures like the first days of the stock market in the US. Many accessible brokerages in the form of apps can be found effortlessly to provide you the best comfort in the entire process.
5. Start small
Compared to real estate, which will probably require you to invest about 300 million VND up to 1 billion VND, stocks are a much more comfortable investment choice.
Although the Vietnamese stock market only allows investors to buy stocks in lots of 100 shares, many Fintech companies have been developed to help remediate this dilemma.
From index funds, ETFs, or just shares in general, you could refer to platforms such as Anfin, Finhay, Infina, Tikop, and so on.
The effort here is to search for the brokerage that best suits your needs and preferences and performs most efficiently.
Sum up
Long story short, my own answer to the question “Are Stocks a Scam?” is a firm NO.
However, it doesn’t mean that you won’t lose any money when starting investing.
Make sure to gear yourself with proper knowledge and mindsets and refer to as many resources as possible before getting into the market.
Your supporter,
mingox
