I was having a discussion with a friend the other day, and we were talking about stocks, and whether it can make someone rich or not. He was saying that stocks do not usually make you rich, but owning your own business will. I argued that even if you work by yourself, stocks can definitely make you rich. I know quite a few investors (working by themselves) who are at least 30% up every month. Let’s examine this statement for a moment; let’s start with $10,000 beginning of September and see how much that $10,000 will be in just two years from now if we make 30% every month:

So, in only 2 years, these traders can increase the initial size of their investments over 400 times from $10,000 to over $4 million. Not too bad, huh?

Now these people making 30%+ every month are excellent traders, let’s say that you are a conservative, careful, and somehow inexperienced trader, making only 5% every month, let’s see how much you’ll be making in 2 years:

So, you have tripled your initial investment in only 2 years, but that didn’t make you rich, did it? Because now you have only $20,000 extra, and you haven’t paid your taxes yet. However, even with this mediocre percentage increase every month (I’m not saying it’s easy, I’m just saying it’s mediocre), you can make your first million in 8 years, and we haven’t taken into consideration that during these 8 years, you are sure to become a much more experienced trader, that will most certainly make more than just 5% every month.

In any case, I am certain that stocks can make anyone rich, but it is not necessarily the case for all people. Here’s what it takes for stocks to make you rich:

– You should invest money that you don’t need in the first place.
– You should not be greedy, and you should not be afraid. Think about it this way, if stocks will always go up then there will be no buying opportunities and everyone will leave his job to trade stocks.
– You should be patient. Selling when your stocks are down and buying when a stock is on fire are not the best strategies. Keep in mind that what goes up must go down and vice versa.
– You should do the necessary due diligence before buying any stock (e.g. studying the trend of the stocks)
– You should believe in yourself and trust your instincts.
– You should focus on commodities (especially oil – buying when it’s down, selling when it’s up) instead of focusing on companies.

There are many people who became rich by trading stocks, and many many many people who left the stock market within a year after they just “gave up”. Which one of them do you intend to be?