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Do Not Rush Into Investment!

Aug 17, 2007
After graduation and working for a few years, I have learned that working for money is very tough. From what I have concluded from Rich Dad series, I know that I must make money work harder by investment. So when I heard that I could make money easily by investing in shares, I quickly rushed into it. I did not come from a strong financial background like accounting. Neither did I attend any share investment courses before I have started my investment in shares. With a little savings, I simply jumped into it.

Maybe I had what you called beginner's luck. I managed to make a bit of money from my first few trades. Then my ego became inflated. I thought that I was rather good at trading shares. Also, my greed came into the way too.

I figured out that if I could make $100 from a single trade, then if my invested capital were to increase to 10 times the original capital amount, then I would have made $1000 easily. If I could make $1000 per trade then basically, I could achieve financial freedom in a very short time. That idea really got me very excited. But the only issue was that I did not have such a large amount of capital.

Here is the bad news! I found a way to get around the issue of not enough capital. There is this thing known as contra trading which solves my issue. The rules for contra trading vary from country to country.

The basic idea of contra trading is that I am able to earn money without any capital. If I buy shares of a company today on the stock exchange, I only need pay up the purchase amount within the next 3 days. If I happen to sell all the shares within the next 3 days period, then I do not need to fork out any money at all. The sale amount will be able to cover the purchase amount.

For example, if I were to buy 10,000 shares at $1 today from the stock exchange, then I would need to pay up $10,000 plus the transaction fee within the next 3 days. Let say the price of the shares increases to $1.20 on the next day. And I sell all the 10,000 shares at that day. Then the sale amount will be $12,000 minus the transaction fee. This sale amount is definitely greater than the purchase amount. So my profit will be the sales amount minus the purchase amount without the need to fork out any initial capital.

You must be wondering why I mentioned that it is a bad news when I found out about contra trading. Well, let look at the above example again.

if I were to buy 10,000 shares at $1 today from the stock exchange, then I would need to pay up $10,000 plus the transaction fee within the next 3 days. Let say the price of the shares drops to $0.80 on the next day. Since the price has dropped, I will not want to sell and make a lost. But let say on the last day, the price of the shares still do not recover. If I want to hold on the shares, I will need to pay the purchase amount. Since I do not have the money, I will need to sell at shares at a lost. If I do not sell my shares and do not pay up the purchase amount, the stock exchange will do a forced sell on my behalf at an even lower price. No matter what, I will still end up with a lost.

Well, that is exactly what had happened. That is the reason that I told you it is bad news for me to find out about contra trading at such an early stage. Instead of making money, I ended up losing money. The amount that I had lost almost wiped out whatever little savings that I had. And I woke up from my dream that I was a good trader. Because of this painful lesson, I learned that it does not pay to rush into investment without knowing what I was doing. And I decided that I want to learn more so that I may recover my loss.

After study and learning more about shares investment, I have learned that a few general guidelines can be applied to any kind of investments.

Firstly, I must get educated in the type of investment that I am investing. With this knowledge, I will be able to identify the risks involved in that type of investment.

Secondly, I must find out if there is an existing system to manage the risks involved so that the investment becomes more viable. I will avoid inventing the system because it will cost too much money and effort due to mistakes.

Thirdly, I will always start with a small amount when investing in any new type of investment. This is so that I may gain experience and learn more about the practical side of the investment. Since I only risking a small amount, my loss will be capped if I make any mistake.

Next, I will only invest after I have set aside my emergency funds and taken care of my insurance needs.

Lastly, I will only invest the amount of money that I can afford to lose. This investment amount should be a separate amount from my emergency funds.

The author only provides the material and information as a layperson's views about an important subject. The materials and information are from sources believed to be reliable and from his own personal experience, but he neither implies nor intends any guarantee of accuracy.

All the materials, information and procedure in this book are only the author's personal opinion. You must consult your own professional advisor and other reputable sources on any matter that concerns you or others.

The author, publishers and distributors are not competent and do not profess to give legal, accounting, medical or any other type of professional advice. The reader must always seek those services from competent professionals who can review your own particular circumstances.

The author, publisher and distributors particularly disclaim any liability, loss, or risk taken by individuals who directly or indirectly act on the information contained herein. All readers must accept full responsibility for their use of this material.
About the Author
Max Ng shares about his struggle for financial freedom at http://www.richdadsecrets4me.com
Get a free sample of his book "Your Greatest Gift! Why Waste It?" at http://www.yourgreatestgift.com
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