A friend recently asked if I would invest $10,000 for him. I shrugged it off but he proceeded to tell me that he needed to make a quick buck to pay for some medical expenses he was about to incur...
Many people view the stock market as a "get rich quick scheme" -- you just need to know how to play the game.
This wasn't the first time I've been asked by someone to invest their money to make some fast cash. I know it won't be the last, either.
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In these sorts of situations, I try to tamper their expectations by letting them know that it's really not that simple (or easy). I tell them that even if I were to generate a "quick" 10% annual return on their investment, it doesn't really add up to much in the short term. After all, a 10% return on $10,000 is only $1,000... and that's over the course of 12 months. It's most definitely not going to be enough to cover any major medical bills.
As much as I would like to help these folks invest and learn about the market, it's hard to overcome these kinds of expectations. Investing can be a frustrating endeavor, but it also can be rewarding. I do believe that the stock market is one of the greatest tools we have at our disposal to build our wealth... over time.
But in order for it to be less frustrating, less stressful and more enjoyable we need to keep our expectations and perspectives in check. And ,of course, we need to keep it simple. Investing doesn't have to be complicated, nor should it.
It's when we expect to turn a $1,000 or $10,000 investment into hundreds of thousands of dollars overnight that investing can become unhealthy. When those are the expectations, that's when you begin to try complicated strategies, or you put all your eggs in one basket on that one stock, hoping that it will be the stock the allows you to retire early. That's also when stress levels and sleepless nights become routine.
That's no way to build wealth or live life.
Instead, it's best to keep those expectations in check and keep investing simple. Keeping it simple is how investing legend Warren Buffett became one of the world's richest men.
Buffett didn't get caught up in the whirlwind of investing in internet stocks during the dot-com bubble in the late 1990s. Yes, he was chided for "missing out" on these hot stocks. But he didn't understand them, so he stayed away. Instead, he kept his focus on buying some of the best businesses in the world. He stuck to what he knew and he kept his investing simple: buy great businesses at fair prices and let them reward you over the long term.
Buffett's investing script is straightforward: buy companies that dominate their industries, sell their products around the globe, have high operating margins and strong balance sheets, and generate massive returns for shareholders. These are companies that have likely been around for decades and won't be going away anytime soon.
The funny thing is that Buffett's investing strategy is easy to understand. He even provides a blueprint of what he looks for in companies in his annual letters to shareholders. Yet, few investors have the patience to invest in these great businesses. They're usually too "boring." Instead, investors look for that next hot stock pick and expect it to immediately shower them with the sort of wealth that Buffett has accumulated over the last 50-plus years.
As I've said time and time again in my Top Stock Advisor premium newsletter... we want to buy wonderful businesses at fair prices. This is a time-tested strategy, with Warren Buffett is living proof that it works.
Investing takes patience. Keep your expectations and perspective in check, and remain focused on buying the best companies on the planet. And, of course, remember to keep it simple.
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This article originally appeared on StreetAuthority.com.