Investing is a lot like cooking. You need to pick the right ingredients, use the right tools, and have patience to achieve recipe success.
Imagine that this grill is the stock exchange. The grill is our framework where publicly traded companies can list their shares and where investors can trade these. If the grill is the stock exchange then the gas is the money that gets poured into it. The money that people are investing or not has an impact on the price of stocks. Generally, more gas equals more fire. When there’s investor confidence, there’s a lot more demand and things really begin to heat up. So if the barbecue is the stock exchange, and the gas is the money, then the tank here represents the various players that partake in this great meal; the investors, the companies, brokers, market makers, et cetera. This tank doesn’t look like much, but without the tank there’d be no gas and without the gas, there’s no activity at a barbecue, but the gas can’t flow freely by itself, that would be dangerous. It needs to be controlled and that’s where the central bankers and regulators come in. Central bankers set monetary policy and control the money supply, which is similar to how much or little opening the gas valve controls how much gas makes its way to the grilling surface. In the stock market, the Securities and Exchange Commission plays the role of leading regulator in the US. Its mission is to promote transparency, protect investors, and maintain the integrity of the US securities markets. Without regulation, the whole thing goes up in flames and we’d see crashes like we did with crypto.
Now that the basics are taken care of, let’s get to the good stuff. Today, we’re going to be cooking different things. That’s the real key to a good barbecue and to good investing, diversification. Let’s start with our chicken wings. They’re the growth stocks of this barbecue. Growth stocks are shares of companies that are expected to grow at a faster rate than the overall market or their industry peers. So investors buy them in hopes that their stock price will increase and they can earn a juicy return from that capital appreciation. The goal is to get them while they’re cheap and hope to hit the jackpot. Now, this is a real beauty. This is a good piece of meat. Sirloin is like a primo investment. Something akin to investing in gold or blue chip stocks like Coca-Cola, McDonald’s, or Microsoft for example. Primo investments are typically considered to be higher quality and lower risk but this type of investment is generally expensive just like this steak. It’s something most people would want on their plate but it’s expensive and it’s limited. So what we’re going to do is cut it into smaller slices so more people can get a piece of it. This is like fractional investing. You get a smaller piece at a more affordable price of something really worth having. For example, a single share of Berkshire Hathaway class A costs over $500,000. That one is an extreme case, but even shares of companies like Amazon or Alphabet are in the thousands of dollars per unit. Not everyone can afford that, so brokerage firms often allow investors to buy a piece of this stock instead of a whole share. That way, more people get to try the primo meat.
While we’re talking about how much of something you can get on your plate, let’s go back and check on those wings. They’re very popular at barbecues and you would be much more likely to get a whole wing to yourself than an entire steak. You could even get a few of them to fill out your plate. I also have a selection of vegetables, corn, peppers, onions, and even Brussels sprouts. Vegetables are like the bonds in a portfolio. Without a mix of these on your plate, your portfolio isn’t gonna be all that healthy. They have a reputation for being boring but how they’re prepared can make a big difference. Sure, if they’re done the way your grandma made them, their reputation is justified, but prepared with a little imagination and they become a solid contributor to your barbecue and your portfolio. And bonds, just like vegetables probably aren’t gonna give you a heart attack either. Too many expensive, risky, or fatty investments aren’t gonna be good for you in the long run.
Last but certainly not least, I have some bread and butter over here. In the world of investing, this is your cash or equivalence, like a money market fund. These allow investors to keep some of their money accessible when they need it, and like a good appetizer or in a bad place to start when investing. At the end, you wanna have a diversified portfolio to really balance out your plate. And whatever you do, whether it’s cooking or investing, it’s always best to seek advice from an expert.
