Financial Markets and Financial Markets Analysis

Plain and simple, financial markets serve the function of bringing together borrowers of finance with lenders of finance. Through the products available on financial markets, including stocks (equities), bonds (debt), derivatives (e.g. options), speculators (investment professionals, institutional traders, retail traders (individuals)) can participate can also participate in these markets.

Not enough people know enough about financial markets and financial markets analysis, how the markets work and how to make a sound financial blueprint which will give you the best chance to reach financial independence in your future. I learned from my earlier mentors, Paul and Stephen Sutherland, of ISACo Ltd a long time ago that those who look at the stock market as a risky gamble, are those who do not manage their investments like professionals. Investment professionals who attain financial independence by way of financial markets, individually or as their employment career path, do not think about the market as a casino gamble. They leave that to the uneducated…

Rather they focus on how to consistently outperform the market (i.e. a diverse portfolio of similar assets, for example, all the stocks listed on the NASDAQ exchange – “National Association of Securities Dealers Automatic Quotations” American stock exchange associated with “growth stocks”) and they make plans which will utilize the power of compounding. They take into account a rate of inflation when forecasting their desired financial goal and determine clearly what performance they will require in order to reach that goal within a chosen timeframe.

In other words, and using slightly more jargon, if your trading focuses let’s say on US Stocks or on Mexican mutual funds, your portfolio goal might be to outperform a relevant benchmark index, like the NASDAQ or the MSCI (Morgan Stanley Capital International) EM (Emerging Markets) Latin America Index. If you’re beating the index consistently, you’re doing well. The more you beat the index by, the faster you’re going to reach your financial goals. You can rate the aggregate annual performance of mutual fund managers by using the same benchmark if you want to do your own research to find the best performing fund managers around.

Using the terms you’ll understand if you’ve studied some business and finance academically: if you know about project decision rules from corporate finance, “r,” the investors expected rate of return on investment is the benchmark you’ve set for your investment portfolio “project.” For your investment to provide a worthwhile return, you must outperform the market, or the project itself has less than positive net present value at the outset.

This means that in order for you to become successful financially with financial markets as a vehicle for wealth acquisition and using your own funds, it’s imperative for you to find a way to beat the market and achieve superior returns to the market on a consistent basis. You must either outperform the market yourself or find someone who consistently outperforms the market and shadow what their doing. While some argue that this can’t be done, I’ve never met a successful financial markets practitioner, especially those who put their own capital on the line, who agrees with this standpoint.

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