Uncle8888 has been trying to understand this:
Where does the money from stock market come from?
He thinks that most of the money from the stock market will come from investors/traders participating in the stock market and only some money will be coming in the form of stock dividends distributed by companies and shares buy-back by companies.
In fact, the amount of money coming from companies is nothing compared to the enormous amount of money changing hands in the stock market.
Uncle8888 also remembered Warren Buffet once said: "The Stock market is a financial redistribution system. It takes money away from those who have no patience and gives it to those who have."
He believes it is true. So he understands it is important to be patient; or else he may end up distributing part of of his hard-earned salary to other people in the stock market.
Luckily, his favourite hobby is fishing and fisherman by nature will has more patience.
With the understanding where does the money from the stock market come from, it will be easier for Uncle8888 to understand why some people may choose to do short-term trading and/or long-term investing
Why do people come to stock market?
1. To MAKE money
Some people come to the market to do short-term trading and their primary focus is to MAKE money in the stock market; and they are rarely motivated by stock dividends.
At first, these people came to the stock market and thinking that they can MAKE money from doing some short-term trading. But, they soon realize that making money from the stock market is not easy when they started to lose more and more of their hard-earned money to the stock market.
Once they realized that making money in the stock market is not easy. Some of them may give up or cut down on doing short-term trading and change their strategy. Most likely, these people may cross over to doing more long-term investing and less short-term trading.
So what is long-term investing?
Uncle8888 thinks that generally there are two camps of people doing long-term investing.
One camp belongs to the Cowboys and the Farmers.
2. To RECEIVE money
Read The Cowboys. The primary objective of cowboys is to receive money from companies in the form of stock dividends either over quarterly, semi-annual or yearly. It is true that cowboys will feel happy or at least feel quite satisfied with their Returns on their investment. If you don't believe it; then you may want to visit some investment blogs, forums, or chatboxes and you may be able spot a few cowboys expressing their joy publicly that they will be receiving some stock dividends from XYZ companies soon.
The Farmers have the same primary objective as the Cowboys except they are not into REITs or Biz Trusts; they like to receive money from some fundamental strong companies which are known to be consistently paying out good stock dividends.
3. To MAKE FUTURE BIG money
The other camp belongs to the D.O.G. ( Read on Graham's Investing?)
The D.O.G's primary focus is on making future big money from the stock market with their undiscovered market gems. Some D.O.G may also like to receive some money from their undiscovered market gems while waiting for future big money to come to them.
Who are doing long-term investing?
Uncle8888 thinks that there are three possible types of long-term investing.
1. Unintentional Long-term Investing
They at first came to the stock market to do short-term trading; but when their positions got stuck. They managed to convince themselves that they are in long-term investing. If they happened to receive some stock dividends; they will console themselves that the Returns from their investment have beaten the Bank's FD rate.
2. Intentional Long-term Investing
The Cowboys, Farmers and D.O.G are the ones doing intentional long-term investing. They clearly know what they are doing in the stock market.
So what is Uncle8888 doing in stock market?
He is only interested in doing short-term trading and making money. He doesn't go for intentional long-term investing. To him, stock dividends are just safety net to support him should he fail in his short-term trading and his positions got stuck. Read on "Receiving stock dividends".
Then how come Uncle8888 can be holding stocks for many years when he didn't intend to do any long-term investing in the first place?
3. Evolutionary long-term investing
Actually, Uncle8888's long-term investing positions evolve from his short-term trading positions. Most of his short-term trading positions were slaughtered for money and only a handful of them managed to survive and evolve. So he coined the term as Evolutionary long-term investing.
The process of evolutionary long-term investing is best described with the following stories:.
Read Do you know where are rocks? (stocks)
The moral of the story: Know where are the rocks and step on them.
Read Opportunity In The Stock Market?
The moral of the story: Opportunities in the stock market rarely come by so learn to recognize them and stop habitually throw them away.
Read Pillow Stocks
The moral of the story: How to have the Cake and still eat it?
Answer: Buy another same Cake to eat. Now you will have the Cake and also have eaten it.
The process of evolutionary long-term investing by Uncle8888 can be simply stated as follows:
- Know the Rocks.
- Feel the Touch Stones.
- Make the Pillows.
- Recover the Capital.
- Receive the Money.
- Sleep soundly.
Does short-term trading and long-term investing work for Uncle8888?
He has been doing short-term trading and long-term investing on Kep Corp since 2001. Read ? Kep Corp and his realized profits and stock dividends received on Kep Corp alone will be more than enough to cover ALL expenses to be spent for 4-year University study course at SMU and NUS for his two kids.
Read ? Cost of University study
The moral of the story: Be Focus. One may be Enough.
Uncle8888 is not a high income earner
He was shocked when one woman told him that her 2nd and 3rd Child Tax Rebate was consumed by the third year. He couldn't even finish his 2nd and 3rd Child Tax Rebate in 14 years!
Since he is not high income earner, he can't depend on saving MORE for retirement fund. He has little choice but to find other means to supplement in building up his net worth for his retirement needs. He tries to do it through his short-term trading and evolutionary long-term investing strategy by taking whatever money he has on hand and made it works harder.
Uncles8888's current Net Worth as on 11 Feb 2011, Friday, SGX closing.
As you can see from the Pie chart above, 47% of his net worth comes from making and receiving money from the stock market. 14% of this money is locked in CPF OA to generate 2.5% Compound Interests and the other 33% is re-invested back into the volatile stock market.
Can Uncle8888's investing strategy works for you?
"If you believe you can't, you can't!" - Createwealth8888
(But, not the same as the other way round hor)
Read? Are you this Eagle?