Yes, you can...but you probably won't.
Too blunt?
Why you're unlikely to become a millionaire by trading on the stock market
It's easy to look at companies such as Amazon and Tesla and say 'if only I bought shares when they were start-ups, I'd be a millionaire today'. That may be true, but there are a few problems with this. First, start-ups are usually not publicly traded companies, so to buy shares in a start-up, you'd have to have access to the founders either directly or indirectly. How many average Muslims do you know that have access to the likes of Elon Musk or Jeff Bezos?
Further, by the time a company debuts on the stock market, the company is usually quite big and the shares are not necessarily a bargain any longer. In fact, when a company has its IPO (initial public offering), the share price may go up or down (just like with regular stocks) straight away. There's no telling which way the share price will go.
The story of slack, the cloud based productivity management app, is an interesting one here. Most companies get listed on the stock market via IPOs. This means banks underwrite the offering and new shares are issued. Slack chose a different route: direct listing. This meant banks did not underwrite the offering, and no new shares were issued, but it did allow existing shareholders to sell their shares. Slack didn't need the money as it had $800m in the bank, it said, so a direct listing made sense. When Slack made its debut on the New York stock exchange in June 2019, it opened at $38.50. In the days and weeks that followed, the share prices tanked. By Christmas of the same year, the share price was as low as $22. The share prices have never recovered since the slide began (the highest it went to was $35 in May, but has since fallen). That's not to say the share price will never recover - it may or may not do, but no one knows.
What about if you managed to choose a winning stock? Surely, you could be a millionaire then, right?
Theoretically, yes, but again, I think it's unlikely. This is because you'd have to achieve the perfect storm of (a) picking the right stock, (b) at the right time, (c) at the right price, (d) at the right quantity and (e) hold it for the right amount of time. Again, this is not impossible, but just unlikely.
A. Picking the right stock
This one is fairly obvious. If you bought Slack shares, for instance, hoping it would make you a millionaire, it looks like there's a long wait ahead.
B. Sometimes the stock itself may be performing well, only to collapse due to a one-off event. Consider BP's share price in April 2010 for instance, when the Gulf of Mexico oil spill occured. The pre-spill price was around £6.39 a share. Inevitably, the share price collapsed after the spill, reaching lows of £3.04 as the financial implications became increasingly clear. Buying BP pre-spill was simply the wrong time.
C. Some stocks seemingly rise all the time, but if the rise is too slow, it may not be good enough to make you a millionaire.
D. Sometimes an investor might pick the right stock, at the right time for a bargain price, which then shoots up. But if only a handful of those shares were bought, it won't be enough to make anyone a millionaire.
E. Even if an investor bought the right stock, at the right time, at the right price in huge quantities, but sold before its peak, it still may not make someone a millionaire. I've been guilty so many times of selling shares too soon, only to wince at the sight of those exact shares soaring to new heights.
The FTSE 100 has grown between 5%-8% per year historically (but remember, this trend may or may not continue in the future). If an investor put in £10,000, and watched their share value rise 5% every year and reinvested the initial plus the return, it'd take 96 years to breach the £1m mark. But look on the bright side, your kids could be millionaires.
So there you have it: why I think you're unlikely to become a stock market millionaire.
So why even bother?
You need to be clear why you're investing, how much you may gain, and crucially, how much you may lose. Investing in the stock market is not for everyone. In my view, it's a good way to supplement an income, but possibly too risky (and stressful) to make it one's sole income.
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