Can You Make Money Investing in The Financial Markets?

Disclaimer:  I am neither a financial planner, nor an investment guru.  So, don’t take anything that you read here as professional advice on investing.  As always, do your own research!!!

Although it is much more expansive, I use the term financial markets here to refer collectively to equities (stocks and mutual funds), futures market, Forex and bonds trading. The simple answer to this question is “yes”. However, the ability to make money through these avenues comes with many risks. If you don’t know what you are doing, then you open yourself up to more risks and the probability of losing money increases exponentially. Therefore, I highly encourage new investors to get a solid financial education and a thorough understanding of investing before taking risks with real money.

I’m very much like most people who grew up in the United States. There were periods when my family fluctuated between poor/working-class and lower middle-class. While I was growing up, I didn’t get the benefit of a firm foundation in financial education.

My parents don’t have much formal education. In their younger years, my father was a self-taught, skilled tradesman/construction contractor, who owned a small business. My mother worked mainly in retail, domestic housekeeping and care-taking.

They definitely knew how to hustle and make money. They taught us all a good work ethic by example. The problem is that they didn’t understand how to manage the money they earned and grow it. So, this knowledge (or lack thereof) was passed down to their children like genetic material.

I had to teach myself how to balance a check book and set up a budget in my late teens. Personal finances and retirement were rarely, if ever discussed in my family.

So, my financial markets education began in the mid-1990s. This was at a time when mail-order catalogs and brochures were extremely popular and before the internet blew up. I received a pamphlet in the mail from The Ken Roberts Company in Oregon. The pamphlet was a story about how Ken Roberts became a millionaire in real estate and later through trading in the commodity futures and options.

I was so intrigued by the brochures that I decided to take a chance and order a course which he offered for $195. It was called TWMPMM (The World’s Most Powerful Money Manual & Course) which was a futures trading course from the Ken Roberts company. Futures markets deal mostly with the purchase and sale of contracts on underlying commodity assets. Commodities are basically raw materials and things that people need in order to subsist such as oil, natural gas, metals, sugar, corn, wheat and pork bellies.

There are also futures markets for currencies like Eurodollars. Futures trading takes place at exchanges around the world. The most well-known exchange for commodity futures and options trading in the U.S. is the Chicago Board of Trade. The market is so much more diverse now than when it was back then. Now, people are trading derivatives on real estate, stocks and bonds.

The traders who invest in futures are speculating on whether the prices of a commodity will either go up or down at a point in the future. Traders who buy a futures contract (go long) are expecting to profit off an increase in price on the commodity. Traders who sell (go short) a futures contract are expecting to profit off of a decrease in the price on a commodity. Farmers use commodity futures and options investing as a hedge (or insurance) against loss in the agriculture industry.

Obviously, the futures market is more complex than what I discuss here. I say all of this to explain a bit about what the TWMPMM & Course taught. The box set included a VHS tape, a manual and a hardback copy of The Richest Man in Babylon, the classic by George S. Clason.

TWMPMM & Course takes you by the hand and provides very basic information on how to interpret some of the patterns in price charts through technical analysis. Some patterns such as 1-2-3 tops and bottoms, are signals to help traders decide when to buy and sell futures contracts. A few months later, I decided to purchase TWMPMM II: an expensive set of options trading VHS tapes from the Ken Roberts Company.

I did learn a great deal about this subject but the funny this is, I never acted on those specific teachings. I spent several months updating the price charts and paper trading (following commodities that caught my eye without investing any money). Had I invested real money on some trades I would have made a lot of money on Gold and lost money on other commodities.

Price of Gold 1996 futures chart
Price of Gold 1996 futures chart

 

Price of Gold 2012 futures chart
Price of Gold 2012 futures chart- See how much it when up in price?

 

The end result was that I decided that this route to making money in the financial markets was too risky and volatile for me. The prices of commodities are subject to wild fluctuations, even with limit moves in place. This is when the price moves up or down substantially in a very short period of time. I didn’t feel assured in making investment decisions by relying solely on patterns in price charts. Also, futures trading is heavily leveraged through margin accounts. This is another thing that I didn’t feel comfortable with. You can actually lose more money than what is in your margin account through investing in futures.

Now don’t get me wrong: there is definitely money to be made in futures commodity investing. But, it is not for the faint of heart. This path to investing is not for people who are averse to risk. And you should never risk funds that you can’t afford to risk.

I don’t regret plunking down the money for those courses, because it was a fascinating introduction to the world of investing. In a way, I thought that the information in TWMPMM was just a good general overview, just scratching the surface of futures trading. It was not nearly enough for a student to become a professional trader. However, I consider the money that I spent on the courses as an investment on my education. It exposed me to a different way of thinking. The course material served as a springboard to furthering my studies of financial markets. It made me more aware of the opportunities that existed to make money.

I even got fancy and subscribed to the “Wall Street Journal” to keep current with the news in the financial markets. I think that I must have read about 3 or 4 books written by Suze Orman alone. I did also read some beginners books on investing, namely learning more about equities, such as stocks and mutual funds. I’ll get into this more in another post, but the first ever investment that I made entailed the purchase of stock and bond mutual funds from within my 401k retirement account.