Inspired by an article I read by Kirk Du Plessis I wanted to highlight the use of analogies to explain financial concepts and terms.
One of his favourite analogies is to explain financial markets in the context of cars.
Analogy of a 16-year old with a Ferrari to trading in penny stocks
In that many beginner traders want to make money fast so they trade in penny stocks in the hope they get the 80:1 payout. This is like giving a new driver a Ferrari! They will probably drive it too fast, crash and end up in an accident. It is not certain that it will happen but it is highly likely.
Two cars you should have in your garage
You should have the race car and the daily driver car in your garage. The daily driver car is the one that makes your living and the race car will make your fortune.
Learn to handle and drive the daily driver car and earn some money from it before you start driving the race car. In order to drive the race car, you need to know a lot about driving and to know the race car inside and out. You can't drive the race car without first mastering the daily driver car.
The full article is here.