Sunday, August 24, 2014

A Gambler Can Be An Investor

The beauty of the stock market is that you can either trade or invest. To make money by trading is much harder than to make money by investing. I wouldn't say you can't make money by trading. Actually you can, but you have to learn the skill first. So, unless you have the skill, do not trade.
To trade means to buy and sell shares with the intention and hope to make a profit within a few days to a few weeks. 
Most of these traders generally do not make any research themselves. They buy and sell based on tips from friends, remisers and analyst recommendations in the media.
They are usually small players with small amount of capital. Most of them lose money. They lose money because they lack the necessary skill to trade intelligently. Their transaction cost is high because they can't get special rates. Their cost of fund is probably high as well because they probably play on margins and a bank loan. 
With time constraint, high cost of transaction, high cost of fund, and a lack of knowledge, is there any wonder that the odds of winning are heavily against them? 
When you place a bet with the odds against you, you are  gambling. For example, when you go to bet in a casino, you are a gambler because the odds are against you. 
Can a gambler be an investor? Yes, a gambler can be an investor.
Peter Lynch, a well-know and successful investor, puts it this way. He said, " A gamble is an investment if you can tilt the odds to favor you." So in this context, a professional trader or gambler can be called an investor. Whether you agree with him or not is up to you to decide. 
A common mistake of traders, is that they take small profits and suffer big losses. When they have a winning stock, they sell when they have a small profit, but when they have a  losing stock, they will hold until there is a big loss before selling. This is what we call, "Eating like a chicken, and pooping like an elephant."
You can't win without skill. So if you wish to trade, learn the skill first. If you know a winning trader, get close to him, and learn from him. If you know of none, then you have to self-taught and learn from experience. 
Our present bull market is now well into its 6th year. It stared at the end of the bear market in March 2009. 
If you can't make money in a bull market, obviously something is wrong with you. You need to revise your way of play completely to turn around.  
You can't expect a different result if you have been doing the same thing again and again. You need to change; you need to find a better way to play the market. Otherwise, when the bears finally take over, your chance to make money is zero, and you are likely to suffer substantial losses.
Your need a license to drive, but you don't need any license to play in the market. Do you know why? 
Simply because, your mistake in the stock market is somebody's gain. So, the more inexperience or unskillful you are, the more welcome you are.
Think well before you speculate in the stock market. Do not borrow money; speculate only what you can comfortably lose. 
Better still, don't speculate at all. Just invest, invest and invest.