“The only way to avoid mistakes is not to invest—which is the biggest mistake of all.” – John Templeton, a legendary stock market investor
I have been investing in the Philippine stock market since 2009. I have made pretty good money, and I have learned my lessons (that’s I think the right thing to say when you missed making money). I am not a stockbroker. Just a pure investor. Pure value investor.
From time to time I meet people who are into the stock market. They come from all walks of life, and they do it for varied reasons. I met one and told me she wants to invest now so that next year she’ll have money for travel. Not bad, but I reckon it’s not investing.
In gambling, you have a 50-50 chance of winning. Investing is nearly 100 percent, if not totally 100 percent, chance of making money.
One thing incredible I notice from people inside and outside the stock market, most think and treat it like a casino. Is it really a casino?
In the Philippines I have never been in a casino, more so betting there (never even once did I buy lotto ticket). But I finally happened to visit one, the Crown in Melbourne. It’s a vibrant environment. Everyone is kind of having fun, though some, if not most, eventually become gloomy.
One thing remarkable I observe: people are excited to win big with a small amount of money. One time in the office where I worked, somebody loudly blurted that his friend won P2 million (around AU$50,000) with just a P20 (AU$0.50) capital!
I kind of, wow! Yeah, I know it can happen. But at the same time wondering how many wise people would dare stop going to the casino after they win big? I bet they are numbered.
There is just within every person a desire to win it big someday. Who wouldn’t? That’s pretty exciting. It enlivens our dead dreams. There is an adrenaline rush.
I saw a similarity in the stock market.
The equity market is a casino if you do the following:
1. Putting money not knowing the business behind the stock you’re buying.
I remember my professor in statistics who lost money in the stock market. Yes, that is right, he is good in numbers yet he lost so much money.
So being good in math is not an assurance of success. (You and I have a chance then). He said he’s impatient; he wants to profit immediately by investing in penny stocks and doing technical analysis. And the technical analysis doesn’t consider the business behind every stock.
Moreover, he told me he once invested $1000 and it became $80,000! But wait! Don’t be amazed yet. I told him, “I think you also lost money investing in penny stocks.” I know this fact because I know a number of people got slaughtered in the market doing this strategy.
And without a blink of an eye, he said yes. He even lost more money than win it. He is now into the property market and he is doing great. He now detests the equity market.
Further, if you buy based on rumors and tips, you may end up a bum. That is why 85% of people in the stock market lose money. It’s a big figure if you realize it. Yes, some rumors about activities within publicly listed companies are true, but most are not.
If you listen to them, instead of knowing the business of that stock, you may make money in a while but likely to lose money most of the time. That makes it like gambling.
2. If you try to make money in just a short period
I read quite a lot from social media investors who would post their bet of the day as to which companies would likely go up based on technical analysis or tips. They hope that the stocks they will buy will be green so that they could sell them outright to make a profit of the day. There is no wrong in taking profit.
What makes this strategy gambling is when one puts money hoping that Lady Luck could make magic and make his stocks go up immediately. This is very risky. So risky that you could lose your pants doing this. That is not the way to make money in the stock market.
No one in this world has the slightest inkling of what is going to happen to the market in the next few seconds.
If you hope of making good money in the few minutes, weeks, or months, for me it’s betting. It’s pure speculation. I don’t do it. You shouldn’t do it. That is not the way Warren Buffett became a billionaire in the market. Don’t try to time the market.
If some market “experts” tell you “buy low and sell high,” I tell you it is easier said than done. To buy when it’s red and sell when green is hard to practice. You need lots of guts to do that.
The fact is, there is not a chance you would be able to know whether the stock market will rise or fall in a minute.
If you do the two things above, yeah you are in a big casino. How should you treat the stock market then? That’s next.