Understanding Asset and Liability (2)

Read? Understanding Asset and Liability

This concept of asset and liability can be extended to stocks investing.

When we invent in stocks without using margins or leverages we are buying assets; but when we are buying stocks on margins or leverages; they will become liabilities whenever we have margin calls from our brokers as cash from our pocket will flow to our brokers.

Good assets

Good assets are those stocks that are paying regular dividends and putting cash into our pocket and at the same time their stock prices are moving up North. Over time, these assets will make us feel richer and richer.

Non-performing assets

These stocks still pay us decent dividends but their stock prices are not moving up North so they may not actually made us feel richer.

Bad assets

Fallen stock prices with no dividends. These stocks are bad assets that we cannot afford to hold too many of them and for too long as rising inflation over long run will eventually kill us.

To become rich in stocks

This is where Pareto's Law will be helpful in our asset management.

80% of our stocks must be of good assets providing cash into our pocket and at the same time they will made us feel richer and richer over long run.