One of the interesting things about the stock market is it can be different things to different people. It can bring safe, overwhelming wealth to those who know how to use it and have a long time horizon or it can bring disastrous ruin to those who would gamble and speculate.

Investors know how to manage risk. Speculators don't.

And nowhere can this be seen better than in the first decade of the new millennium.

This is the decade that saw wealth evaporate twice, first with the dot-com crash at the beginning of the decade and then with the global economic crisis in the latter half.

The investors, those who practice good risk management, stay away from bad stocks and don’t let their emotions get the better of them, made out like bandits as they built up cash during the good years and jumped in to scoop up bargains when the markets came tumbling down.

The speculators and gamblers, on the other hand, lost tons of money and some were even wiped out. These are the people who listened to the “experts” and bought stocks that were extremely overvalued because they let greed get the better of them.  They followed analysts’ recommendations and ended up holding nothing of value when the house of cards came crashing down.

Both groups lived through exactly the same events, but one came out far wealthier and the other came out much poorer.

The question to ask yourself is, and be completely honest, “to which group do I belong?”

Are you an investor? Or are you a speculator?

If you’re a speculator the odds are you will lose most, or all, of your money (if you haven’t already done so). Therefore it might be a good idea to take a page out of Warren Buffett’s book and invest only in excellent stocks with a long term perspective.

Buffett has been very successful investing in the stock market for more than 50 years. And he’s made thousands of others very rich along the way. That alone should tell you his methods work.

When was the last time you heard about a stock market speculator succeeding over five decades and helping an untold number of others do the same? I never have.

To be a Buffett-like investor you need to understand how Buffett thinks. First, he abhors debt. Even before he became a millionaire, he didn’t succumb to the debt trap so prevalent today. Of course there is good debt (that’s debt you use to buy things that generate passive income and capital appreciation – such as stellar stocks, real estate and other solid investments) and then there’s bad debt (debts people incur buying cars, furniture, giant TVs and the like).

If you’re currently up to your eyeballs in bad debt, then the first step is to eliminate it. Pay it off. Get rid of the balances on high interest credit cards, consumer loans and lines of credit before you think about investing. It makes no sense to pay 20 or 25 percent in interest while making much less in the stock market.

Next you have to set goals for your money. If you’re going to need funds in a year or two, don’t put that money into the stock market. If you’re going to invest in the markets your time horizon needs to be five or more years. That’s because although the markets tend to go up over time, in the short term they are highly unpredictable.

Once you’re ready to invest your money for the long term, you’ll need to decide which stocks to purchase, how to diversify, how to allocate your funds and when to rebalance. You’ll also need a good money management strategy. Also remember that stocks are going to be just one facet of your overall net worth. And how aggressive you are comes down to your personality, age, experience and other factors.

There is no one size fits all strategy. However if you decide to invest in the stock market, there is no better starting point than Warren Buffett’s value investing methods. If you start with that and tweak it according to your specific situation, you can significantly increase the odds of becoming wealthy, over time, in the stock market.

If you’d like specific details on how to accomplish everything I’ve just discussed, and much more, laid out for you in easy to understand English, grab a copy of my book, “The Pragmatic Investor.” Since 2005 I have never had anyone purchase the book and tell me it didn’t help them in some way. And I’ve never had anyone ask for a refund although I’ve offered one for many years. See why by getting your own copy right now.

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