This post The One Strategy That Beats Wall Street appeared first on Daily Reckoning.
Wall Street is a scam.
I’ve said it probably a thousand times. It’s something I know from experience. Over the past 15-plus years, I’ve tried just about every investing strategy in existence.
I’ve run a hedge fund that was successful. I ran a fund of hedge funds, which means I’ve probably analyzed the track records and strategies of about 1,000 different hedge funds.
I’ve written several books about my experiences, but I can summarize everything I’ve learned in just one basic idea…
The best way to make money in stocks is to hold forever.
I know what you’re probably thinking: You’ve heard stories about big-shot traders that rake in millions. My colleague Tim Sykes has certainly struck it rich jumping in and out of stocks.
But let’s face it, success stories like Tim’s are rare. And there will always be a few people who get lucky. That’s how luck works.
But all my years of experience have led me to strategies that generate consistent, market-beating returns. Having an arsenal of diverse strategies is the key to unlocking enormous wealth (go here to learn about one of the best).
I get emails every day from people who say they have a system that beats the market. They’re usually really nice people. I’m sure they’re talented and hardworking. And their ideas are usually terrible.
Here’s the problem…
There are millions of talented people trying to beat the market. They’re smart. They’re hungry. And they spend their time finding every advantage possible — the fastest computers, the best data and the most valuable inside information.
I’m telling you what I know from experience.
The only folks that make millions without these advantages are the ones like Warren Buffett and Bill Gates. They’re committed to owning a stock for a long time.
Warren Buffett has never sold a share of Berkshire Hathaway since 1967. Bill Gates sells a little nowadays, but basically held his Microsoft stock for decades.
Every great investor will tell you the same thing. They’ve all used “compounding” to make a significant portion of their wealth.
In short, compounding involves reinvesting the money you make from an initial investment in order to make even more money. As you keep reinvesting the money, the effect multiplies. Over a long period, you can earn staggering profits on your original investment.
That’s why compounding gets called “the most powerful force in the universe.” Albert Einstein allegedly said this but no one can prove it. It doesn’t matter if he said it or not. It’s the truth.
You can use compounding for any investment that pays out a regular income. A bank savings account automatically reinvests any interest. For bond funds or dividend-paying stocks, you can typically choose whether you want to keep the cash payout or have it automatically reinvested.
Compounding is all about reinvesting the income.
The basic idea is this: The reinvested income gets added to the investment… a little extra every quarter or every year. That means any future gains …read more
Source:: Daily Reckoning feed
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