Thursday, December 14, 2006

The Correct Approach is Important

Never approach a horse from the back, a golfer from the side, or a fool in any direction.

The correct approach is the key to success. This is true in the stock market or any other type of business.

The beauty of the stock market is that you can either invest or speculate or do a combination of both. Speculation is not my cup of tea. I prefer to invest.

To invest in the stock market means to buy undervalued sound equities or other financial instruments which promise safety of principal and a good return in the form of capital gains or dividend income after through investigation.

Actually capital appreciation is the name of the game. Dividend yield is the safety net. I would rather do my trapeze with a safety net than without one.

Blue-chip counters are easy to identify. The important thing is that you must not overpay for them. You may buy the bluest of all blue chips and not make money because you bought them at the wrong time. It is much better to buy small-cap size stocks which have good earnings per share with explosive earnings growth and a high-entry barrier.

The success or failure of a company is dependent on its management which is normally its major shareholder. Good management makes money for its minority shareholders. The bad ones “eat” them.

Good management means management with capabilities, integrity, and a high moral value. These are not easy to find. So be careful.

Speculation in the stock market means the assumption of a long or short position in a financial instrument in the anticipation of a favorable market movement which should result in a gain when the position is covered. Speculation provides much thrill and excitement. But it is a dangerous game. Unless you are a genius, it is very difficult to make money consistently. At best you have a fifty to fifty chance.

Whether you want to invest or to speculate, it’s up to you. For me, investment is my choice and I would rather stay with it.