[Desk Column] If You Feel Earning Money Through Stocks Is Easy

A: "I heard from someone I know and recently bought stocks of a certain construction company. But now I'm at a negative return. I'm scared it might drop further. Should I sell?"

B: "Isn't that stock a politician-themed stock? Why did you buy something like that? Don't be greedy and sell at the right time."

A is a housewife, and B is his friend who has some experience with stocks. A recently started investing in stocks. She is a complete "jurini," someone who knows nothing about stocks. Jurini is a combination of the words "ju" (stock) and "orini" (child). A is managing several tens of millions of won that were in her bank account. She installed a Mobile Trading System (MTS) on her phone and places orders herself. However, she neither knows how to analyze companies nor dares to try. She hopes to buy good stocks recommended by someone and make just 1-2% profit per month.

B advised A not to invest in stocks. It seemed very unlikely that A would be able to invest properly. But B could not break A’s stubbornness. Around A, there are quite a few housewives who made money from politician-themed stocks, COVID-19 vaccine stocks, and so on. B worries that A might lose her investment. He explains the reasons as follows.

First, the target return rate is too high. Looking at the stock ticker, stocks usually move more than 1-2% per day. Due to high volatility, it is possible to make tens of percent profit in a single day. Conversely, you can also suffer losses of the same magnitude. Although 1-2% per month may seem trivial at first glance, many individual investors actually have negative returns. If you could make such returns, it would mean an annual return of 12-24%, which is not an easily achievable target even for risky assets like stocks.

Trying to consistently make 1-2% profit every month by buying and selling stocks is a wrong approach. There is no consistency in stock investing. Sometimes stocks rise much more than expected, and sometimes unexpected losses occur. It is a completely different investment from putting money into savings or receiving monthly rent. Many stock experts say that the primary goal of stock investment should be dividend income rather than stock price appreciation. To do that, you need to choose companies that can pay dividends. Companies that generate profits and return a large portion of those profits to shareholders are suitable. Companies that pay high dividends are more likely to see their stock prices rise, and the increased stock price can be considered a bonus.

A is at a disadvantage simply because she is an individual investor. The main players in the stock market are foreigners, institutions, and individuals. Managers or dealers who handle money for foreigners and institutions are experts. They manage huge amounts of money and can sometimes manipulate prices to some extent. It’s like a person with 1 million won playing poker against someone with 10,000 won. The chances of an individual winning are very low. If you don’t properly analyze companies and study market conditions, you will lose every time. In fact, no matter how hard an individual studies stocks, they cannot catch up with foreigners or institutions. One securities firm alone has hundreds or thousands of "stock masters." Although this year "Donghak Ants" (individual investors) have celebrated victories, it cannot always be like that.

A might buy some stocks and make better-than-expected profits. That would be due to luck. If A continues investing like this for the next 10 years, it is highly likely that she will lose all her investment before the 10 years are up.

In the past, there was a saying: "When you hear a baby crying in the trading floor, that’s the peak." This refers to the days when people visited securities firms’ trading floors to place buy and sell orders in person. If housewives came to the trading floor carrying babies on their backs, it meant the market was already overheated and had reached its peak. The stock market has been hitting record highs day after day. The sentiment that prices are too high is spreading. Especially jurinis need to be cautious when they make money. The moment you think you are a "stock genius," or wonder if making money with stocks is this easy, that is the time to be careful.

This content was produced with the assistance of AI translation services.