Imagine for a moment that you are in the 1600s living in Europe.
Unfortunately, you were not born in nobility, with no silver spoon. But that had not stopped you from dreaming about being rich.
You dread waking up each day to toil at the farm which you do not own.
Maybe you should try something different?
You start thinking…
Spice was all the rage, and India was the exotic land of opportunity.
However, the journey from the Netherlands to India was a long, arduous, and, not to mention, a perilous journey by ship.
Is it worth the risk journeying to an unknown land with no certainty of gaining anything? You have a job, and you could comfortably feed your family.
Then you hear of some news of a Dutch East Indies Company (VOC short in dutch) promising to share profits if you fund their voyage. They are a newly formed company with the purpose of trading and exploring new frontiers. Who knows what they will find beyond spices? Maybe gold?
You also have the option to sign up and work for them, to participate in the adventure. But you don’t kid yourself. Deep down inside, you are afraid. Besides, you get seasick quickly.
Eagerly, you emptied your hard-earned savings and bought a shiny new certificate from them. That is your share in their venture.
That was the first publicly traded company, at least according to Wikipedia.
Volatility and Uncertainty
Then the first ship sailed.
One year passed with no news. Then two years. And you began to feel anxious.
Maybe the ship sank? Perhaps they got lost? Or worse, perhaps the Portuguese attacked and looted them?
You start to regret your decision. Maybe you should have used the money to buy a plot of land instead. Your family had the same thoughts as well.
After heated arguments with your family, you finally caved-in and let go of your dream of riches.
You persuaded your friend to buy off the share from you with a 20% discount from what you had paid.
At least you got back the money now. It was too risky, and you could not have afforded to lose all that money. You need to prioritize supporting your family.
Risk and Reward
Alas, the third year arrived, and the ship returned to town. The voyage was a success. Not only did the company make a fortune in India, but it also expanded its operations to Indonesia.
Your friend was beaming from ear to ear – that piece of paper had earned up more wealth than he could imagine.
With risk comes rewards – as long as you have the patience to let it grow.
Fast Forward To The Present day
Although investing is more complicated today, the core if it is still the same – you will need to give up something now for more potential gain in the future.
Purchasing a share is equivalent to buying a piece of future profit of the business.
However, there are risks inherent in every investment. You must be prepared to lose if you are prepared to invest.
The alternative is not investing – you won’t lose your hard earned money and you will continue to receive your wages. But you will not have a chance of gaining more than what you had worked for.
I have brought up a very narrow example of investing – investing in a stock. Investing can take many other forms:
- Starting your own business
- Switching your career
- Moving to a new country
- Furthering your education
- Spending time with your family (Yes, investing time with your loved ones)
- Building up your connections
But the reason why I brought up stock investing (or investing in financial markets) is because it is so easier to start investing via the financial markets. The risks are more managed (because it is a heavily regulated industry – less fraud) and you can start investing with a small amount and with very little time.
If you have not started investing, thankfully the ship hasn’t sailed yet on you. You can always start today.