How to Beat the Stock Markets

I. INTRODUCTION

The structure of financial markets is efficient, converging the interests of investors, who want to obtain profits from their capitals, and those of entrepreneurs and government representatives, who aspire to get financial resources for their operations and projects.

However, investments don´t always give the expected returns and there are risks of non-payment, insolvency and illiquidity, in any organization (public or private), which decrease as the corporation or institution efficiently manages its resources and can effectively comply with the requirements and proposed objectives.

Furthermore, financial advisers and investors are often looking to make big profits, despite multiple risks (including unexpected crises and adverse events), and financial markets continue operating with huge capital inflows.

The purpose of this book is to glimpse the operation of the stock markets (an important part of the financial ones), going from the complex human nature to the development of a proposed method to invest in corporate stocks, expecting that these guidelines will allow to make successful investments and defeat those markets.

In this regard, the main chapters are as follows:

II. The Complex Human Nature.

III. The Stock Markets.

IV. Two Different Approaches.

V. Strategies in Stock Markets.

VI. An Investment Method.

The Chapter II. The Complex Human Nature is divided into: a) II.1 Human Needs (What are the most important?), b) II.2 Human Rationality (Why do human beings seek to maximize profits and minimize losses?), and c) II.3 Reflections on The Complex Human Nature.

Considering the various human needs, the human being lives immersed in a dangerous cycle of dissatisfaction (need-achievement-need), and its rationality guides him to make optimal decisions, in order to maximize profits, minimize losses, improve well-being and achieve happiness. Therefore, rational attitudes have contributed to the progress and development of humanity.

The Chapter III. The Stock Markets comprises these sections: a) III.1 The Functioning of the Stock Markets (How do they operate?), b) III.2 The Impact of Expectations (How do these influence various decisions and the functioning of markets?), c) III.3 The Valuation of Companies (How to establish the real value of a corporation?), d) III.4 The Hidden Risks (How do these influence the financial markets?), and e) III.5 Reflections on The Stock Markets.

It should be noted that the prices of corporate stocks depend on market forces (supply-demand), and aren´t prone to accurately reflecting how much companies are worth (in most cases, stock market capitalization tends to be below or above the real value of the corporation, especially in the short-term). Even these prices are strongly influenced by circumstantial factors: a) rational expectations of investors, b) certain valuation of companies, c) capacity to produce and generate wealth, d) management, e) favorable and unfavorable events, and f) hidden risks.

The Chapter IV. Two Different Approaches has these sub-chapters: a) IV.1 The Style of Warren Buffett (How does he make his investments in a successful way?), and b) IV.2 The Style of Cathie Wood (How is this approach, known as anti-Warren Buffett?), and c) IV.3 Reflections on Two Different Approaches.

Broadly speaking, Warren Buffett is a model of a traditional, conservative and structural style, who seeks reasonable long-term profits (based on successful companies that are very profitable). While Cathie Wood is the benchmark for an innovative, liberal and circumstantial approach, which is oriented to the needs and opportunities of the markets, seeking to obtain spectacular short-term returns (relying on emerging companies and risky financial instruments).

The Chapter V. Strategies in Stock Markets is divided into: a) V.1 Short-Term Strategies (How to buy and sell corporate stocks in a short time, in accordance with the style of Cathie Wood?), b) V.2 Medium and Long-Term Strategies (How to buy and