We have found that there is more to it than just a stock index as a predictor of wealth. We use different strategies to determine wealth for your specific goals. We will even get into our analysis of what happens if the stock market falls.
You can get rich day trading using the stock market. You can get rich without it.
What are the different strategies to determine wealth in the stock market?
When you are trading stocks, your objective is to get a profit. You do this by either buying, selling, or holding.
A profit is the difference in value between your total assets and your total debts.
So if you own 200 shares of stock, and your total assets are 50 and your debt is 80 and your net worth is $1,200, you have a net asset value of $200. This indicates a gain in value of $20 in stock price. When you sell, you take your gain and deduct your debt, leaving you with a loss ($20 – $200). This means you have no debt. And on the other end of the transaction, your assets and debt are multiplied by each stock’s price, which helps you determine the net assets for the stocks.
On the other hand, when you hold and sell stocks, all your assets, including your debt, take a larger bite of the earnings. But the value of all your assets minus all your debt is your current value. It is your total wealth.
For example, if you had a net worth of $10 million today, and you sold 200 shares of stocks, you would take a loss ($7,000), but your net wealth would have grown to $10 million (100% of your original $10 million total). These two calculations are the same for stocks, but as you can imagine, in daily trading, you are not buying and selling stocks every second.
If you can gain at least 2% yearly, then you are probably a successful trader. For this to be true, your stock portfolio must consist of 20:1 stocks to 10:1, 20:1 stocks to 20:1, etc …
To keep track of these numbers, we used a system called “The Value Chain” developed by Nobel Laureate Kenneth Tynan. Here is how The Value Chain works:
The first level of the chain is the stock. It’s price determines a person’s total net worth; the higher the stock’s price, the greater the net worth.
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