Issue: 11
Sent: 26-09-2005 05:32:24
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Deciding to Invest - Lester Wills
Quote: An "investor" can treat the stock market like a casino if they want to.
People give numerous reasons for being wary of investing. One common belief is that investment is akin to gambling.
It is true, there are clear parallels between gambling and investment. For example, both require the odds to be calculated on a given 'bet'. But the similarities end there. If a person bets in a casino long enough, they are guaranteed to lose money in every game except Blackjack. The odds are simply stacked against them.
However, this is not the case with sensible investing. To illustrate this point, the All Ordinaries Accumulation Index grew by approximately 14% per annum between 1980 and 2002.
But, an "investor" can treat the stock market like a casino if they want to. They can ignore the fact that behaving in a sensible manner is more likely to make reliable long-term returns and can instead try to get rich quick, with all the thrills and spills that go with any kind of gambling.
This is not investing, but sheer speculation, and is no more likely to make money than betting on horses. The investor becomes a gambler and their true motive is not profit but excitement.
Typical signs of this behaviour are:
- Frequently acting on tips without conducting research
- Thinking in terms of individual 'bets' rather than a complete portfolio
- Making large 'bets' and boasting about them
- Feeling excited when stocks go up and depressed when they go down
- Planning to give up their day job after a particularly successful trading day
- Having a strong urge to deal frequently, especially when the market is up
- Talking about their good or bad luck rather than their judgement
Such a person really does need guidance. Recognise the symptoms. Look at the facts; calculate the risk you can afford; set investment goals and establish a plan on how you intend to get there.
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