Is The Stock Market Investing Or Should We Learn How To Play The Stock Market?Summary: There are many ways to be involved in the stock market, but for many private investors, stock market investing as actually more like gambling. Should we instead be learning how to play the stock market? For anyone new to investment and the stock market, it is quite a world to enter. There are many different layers to uncover and learn about. From the power broking investment banks and central banks, to the private investor with a few thousand in savings, there is a world of difference. Whether we like it or not, the stock market is a very serious place. There are some very hard working, intelligent, well trained, well resourced professional traders and investors to compete with. And compete we must. For the private investor, it is likely that long-term investment should be the preferred route with an aim of capital preservation plus a couple of percentage points per year in growth. It is, however, unrealistic hopes and expectations that often lead investors to take on much larger risks than they ought to or perhaps more than they even understand. Once that line is crossed, you are an investor no more. You are a gambler now. It would seem safe to suggest that there are probably millions or even tens of millions of people around the world that have made one or a few small stock market investments and now have a 'portfolio' of losses. This is a very common scenario. There are several likely reasons for this to have happened. Poor Company Research. Many people take hours or days to think over the decision to purchase a car or a household television, but decide to make an investment on a 'tip' from a friend who likely knows little more than they do. In fact it is quite amazing the punts people will take on the basis of virtually zero information! You wouldn't find a professional doing that. Many people that do not gamble and would be horrified to risk as much as $/£/€100 on a horse race about which they know nothing are quite able to risk $/£/€1,000 on a stock! When the expected 500% gains fail to materialise - as is usually the case - the poor investor is left holding the stock indefinitely. When pressed, many are unable to describe with any depth what the company makes or sells, who are the major shareholders etc etc. Don't fall into that trap - do your company research! Poor Market Understanding. Many investors also fail to have a basic understanding of markets. This is a vital piece of the puzzle! What will make the market price of this company rise or fall? Is it sensitive to oil prices, interest rates or currency rates for example? Is it in a volatile sector? A sector that is growing or declining? For very large companies, general macroeconomic factors that may have little impact on the actual trading of the company will move the quoted price. For very small companies, an individual trade can be enough to move the price! Be sure to understand what the market may or may not do to your money. Poor Monitoring. Most of us do not have the time to monitor a portfolio every day (or more often!). We have a job, responsibilities, a family and hobbies. In contrast, fund managers spend their working day reading annual reports, market forecasts, meeting company directors and watching the market. They are the professionals. Whether they deserve the huge sums of money that are quoted in the news so regularly is a different matter, but they are ultimately participating in the market as their profession. This means that they probably know and do things that the rest of us do not. Knowing when to sell a holding is one of the key skills that are required for successful stock market investing. However, a failure to follow the market every day means that these ideal opportunities can come and go without a sale being made. This is a problem of monitoring and discipline. Successful stock market investing requires a lot of discipline. It is not a game and people do not play. For people that do not have this core charachteristic, investing in some form of collective investment (a mutual fund or unit trust for example) is probably a preferable option to making direct purchases. Hopefully, these few paragraphs have offered some suggestions as what not to do. They can be summarised by the words, take your stock market investing seriously! The other pages in this section will look at investment and some of the things that a private investor will need to learn and do if he or she is to become profitable in the medium and long-terms. If you would like to read more, please follow these links:
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