Trading Guide - Investing Basics

The nature of investing

Investment, most of the market definition is similar, that is, pay a certain amount of money or resources, in a period of time in the future to gain income.

Here in fact, it is implied that investment requires cost, which includes not only the initial payment of funds and resources, but also the time and energy spent.

The so-called "cognitive realization" is actually based on time and energy, because there is no person born with extremely high cognition, but because of the different environment, talent, luck, there are indeed people who can pay relatively little time and energy to achieve a higher level of cognition.

Think a little deeper, investment is a kind of exchange, with the cost A to exchange the benefits B, different people, the degree of value of A and B are different, based on this idea, in this world, you actually can not avoid investment, all your behavior is actually in the investment, for example.

You work, is to use time and ability to exchange money or sense of achievement and other spiritual pleasure.
You travel, dinners, eating and drinking, is to use money, time and energy in exchange for enjoying life.
You read books and study, is to use time and energy to exchange knowledge, and you think knowledge is more helpful to your life.
You speculate in stocks, with 1 million speculation to 2 million, but you also pay time, energy, psychological pressure, and the opportunity cost of this 1 million can not be used elsewhere (such as eating, drinking and playing), so it is also an exchange.

Expectations and Risks

Investing is an activity that revolves around costs and returns, and two things are naturally inseparable here.

Expectations, what is the return you expect to get.
Risk, how much you can afford to lose.

Generally speaking, expectations and risk are of course proportional, but in practice there is no such thing as a completely 0 risk investment, even if you put your money in the bank to earn interest, you are still faced with.

The country prints a lot of money and the interest income does not catch up with the devaluation of the currency.
The country declines and the bank goes bankrupt.

For daily life investment decisions, such as how much money should be spent on a peace of mind, whether booking this nice hotel is worth it, whether you should marry this person, these do not have specific criteria, but vary from person to person.

However, for investment in industrial or financial assets in the traditional sense, more specialized knowledge is required, so it is not indispensable to give time to learn, and at the same time, one should set a reasonable expectation and risk based on one's own psychological quality and ability assessment.

Before investing

Before investing, be clear about what kind of investor you are and think about your own character. Behind high returns need to take enough risk, need a wealth of knowledge and time, are you mentally strong enough? Are you a person who loves to learn? Are you willing to spend the time and energy you spend enjoying life to learn?

If you really do not love learning, or no time, then you can do some low-risk, low-return investment, which is also a choice to enjoy life, stay with the family, while not having to bear the psychological pressure of high risk, is not a good thing.

Introduction to investment varieties

Here we exclude for the time being to deposit bank demand, fixed deposit, and insurance and other income methods.

Equity

Equity, is a power, when you hold equity, you are a shareholder of a joint-stock limited company, according to the rules of that company, you have the right to vote or dividend.

And the legal instrument of this power is stock, the stock is actually the equity instrument of the company, so buying stock is actually buying the equity of a company, essentially investing in a company.

To hold stock in a company, there are several ways to do so.

Become an employee of that company and the company gives shares.
Buying shares on the primary or secondary market.
Venture capital, where you participate in the equity of a company before it goes public, and actually exchange money for a certain number of shares.

In addition, some companies give employees options, options, which are actually a power to buy shares, and options can be traded on the secondary market in some developed countries.

Funds

For investors who have absolutely 0 basis, it is very suitable to start with funds.

Funds, are products issued by fund companies to raise money. Users can buy this product and give their money to the fund manager to invest in one or more assets, in other words, buying a fund establishes a fiduciary relationship.

The product description of the fund will detail the assets and risks invested, the risk can be high or low, depending on what kind of assets are invested, for example, a currency fund, that is very low risk, and a bond fund, that depends on what bonds are invested in, and a stock fund, which is generally medium to high risk.

So when you buy a fund, you must read and contract book carefully, you must really understand the risk and play of the assets that the fund is going to invest in. For example, if you are going to buy an equity fund, then it is still necessary for you to know what stocks are and how they are played.

Fund managers are usually professionals with extensive investment experience, they help you manage your money, while charging a certain management fee, a fund with good returns, more investors, the larger the fund, even if the management fee rate remains unchanged, the fees charged will become more, conversely, the fund returns are not good, no one voted, the management fee can not get much, so the fund manager's earnings and fund performance is linked, do not worry about them to invest indiscriminately.

Trusts

Trust, is a principal, who hands over a property to a trustee and designates a beneficiary, and the trustee performs investment management and delivers the proceeds to the beneficiary in accordance with contractual constraints. The contractual constraints include the manner in which the investments are made, the timing of the delivery of the proceeds (lump sum, periodic), and the specific conditions that the beneficiary needs to meet.

A typical example of a trust is a tycoon father who is worried about his children spending money frivolously and losing it, and does not want to give it directly to his children, but instead entrusts the trust company to invest it, with the investment income going to his children.

So trusts and funds are somewhat similar, although there are some differences.

A fund is where A entrusts B to invest and the return goes to A. It's a simple relationship between the two. A trust is a three-person relationship in which A entrusts B to invest and the return goes to C.
The capital threshold for trusts is generally much higher, and the number of investors accepted is generally smaller than for funds if the trust is publicly funded.
The risk of trusts is lower than most funds. In the early days of China, trusts even had the unspoken rule of "rigid payment and zero risk", and even now, the risk is still very low.
Trusts have a broader investment approach than funds. Because funds have to update their net value frequently, they cannot invest in products that do not track real-time value well, while trusts are not bound by this, so they can invest in industries, real estate, etc.
The contractual constraints of trusts can be very flexible, and even trusts entrusted by private landlords can be customized, such as requiring that the trust proceeds be received only after the children are married and have children.
Trusts are not as liquid as funds, where over-the-counter funds can be purchased and redeemed, while over-the-counter funds can be traded directly. Trust products, on the other hand, are usually not redeemable until maturity, and although they can be legally transferred, they are still more problematic.
In China, trust licenses are difficult to obtain. There are far fewer trust companies than fund companies.
Regulated differently, in China, trusts are regulated by the CBRC, while funds are regulated by the SEC.

Bonds

Bond, a marketable security issued by the issuer to raise funds, pay a certain percentage of interest at an agreed time, and repay the principal at maturity, may be issued by the state or by a company.

The rate of return on the interest of a bond is called the bond rate. Most bonds have fixed interest rates, although there are also bonds with variable interest rates. Also, since bonds themselves can be traded, the price is influenced by supply and demand.

Bonds have a risk rating. Generally, the riskiness of treasury bonds of large countries is very low, and the riskiness of bonds of large companies is very low, but the riskiness of bonds of small companies that are close to bankruptcy is higher, and of course the bond rate is higher.

The risk rating of bonds is done by specialized rating companies, requiring a very high level of professionalism. Existing well-known bond rating companies, such as Moody's, Fitch and Morningstar, have a history of decades.

Currency

Currencies, too, can be invested in. When you feel that a currency will appreciate or depreciate, you can buy or sell it in advance, and the appreciation and depreciation of currencies is mainly determined by supply and demand.

Common ways include

National currency: that is, the currency issued by the country, often heard of foreign exchange transactions is to exchange the national currency of one country with the national currency of another country, in fact, is to bet on the change in demand for the national currency issued by two countries. For example, if a country prints a lot of money, then the money supply becomes high, at the same time, the country's economy declines, productivity declines, resulting in the production of goods with bad quality performance, high production costs, long production time, etc., then the people who go to this country to shop, travel, study also become less, the country's national currency demand also becomes less, after the supply and demand are out of the question, the country's currency will depreciate.
Digital currency: Digital currency is still a controversial investment, whether it is a currency or a commodity, each has its own argument, here temporarily classified as currency. Digital currencies are not controlled by specific countries and are extremely volatile.

Commodities.

Commodities can be divided into 3 main categories.

Agricultural commodities: including edible crops (cocoa, cotton, corn, coffee, etc.), livestock (hogs, live cattle, etc.), and cash crops (timber, woods, etc.).
Energy commodities: including natural gas, crude oil, petroleum, coal, uranium, ethanol, electricity, etc.
Metal commodities: including base metals (e.g., iron ore, zinc, aluminum, nickel, steel) and precious metals (e.g., gold, silver, palladium, platinum).

Financial markets, you can track commodities through ** futures ** this financial product, futures can track commodity prices in addition to the currency market (foreign exchange futures), stock market (stock index futures), bond market (bond futures), etc., is a complex use of financial products.

But some precious metals such as gold, in fact, the threshold for physical investment is not high, and now some banks offer physical gold investment financial products.