Some say they involve in stock market is for investment. Is it true? Ask yourself these questions:-
1) Why I buy stock?
a) because i want to make pocket money
b) because i want to make a lot of money
c) because i heard my friend makes money from stock market
d) because i have enough money to invest in stock market
e) because i want to learn to make money from stock market
f) because i want to join in the fun
g) because i dont know where to invest my money
h) because i just dont know why i love the stock market
i) because i love the excitement
j) because i read analyst reports recommending this stock is good
k) because my friend recommended this stock is good
l) because i have hot tips
m) because buying a 30 cents stock is very cheap. won't die one. Is any of the answers above is yours?
2) Do I understand how the stock market works?
a) Yes. Buy low sell high. simple
b) Yes. I read reports and books. Lots of them
c) Yes. I know PE, RSI, DY, NTA
d) Yes. I know about shooting star, hammer, doji, white marubozu, hanging man, morning star, three white soldier, three inside up and whatnot
e) Yes. Buy on rumour sell on fact
f) Yes. Pick the phone and call my broker when I get tips
g) Yes. Buy good company and sell when price up 10%, 20% or 30%
h) Yes. Buy when everyone is fearful and sell when everyone is greedy
i) No. But I will learn along the way
My personal experience to the first question is all the answers above. That was when I first started in stock market. That's why i failed big time in my very first endeavor in stock market. I learned and really learned the hard way. And my personal experience to the second question is all the answers above. Again, that's why i failed big time. I paid my tuition fee as some like to say.
So, what is the real meaning of making AN investment in stock market?
Lets start off with : there is no such thing as investment in stock market which many of us like to believe if we give our self a target price for a particular stock that you have invested in. This is doing a trading mindset. Trading mindset is not an investing mindset. Sounded unorthodox. Yes, it is. UncleZ never a compliance to the norm beliefs. Put your money in a stock for 3 months is not a good investment but still can consider an investment if you exit because of company fundamental has changed so drastically in the span of 3 months. But what the heck with this investment that you have chosen in the first place if the company fundamental could changed so drastically in just 3 months?! So it is not a good investment but still an investment nonetheless. On the other hand, put your money in a stock is not an investment if you set a target price and on top of that with 3 months timeframe. This is doing a stock trading. You trade because you expect the profit will come in 3 months. You don't invest because you expect your target price will profit you in 3 months timeframe. You invest because you know the company will grow over time and that your investment in the company will grow in value. Another thought. You won't call it an investment for targetting RM30 for every RM1,000 you deposited in FD account after the timeframe of 1 year period, don't you?
Stock price move up and down because of human emotion. For example, when a company announces a 100% increase in revenue in its quarterly report. Everyone gets excited. Excitement is emotion. Investment is not a function of emotion. It is a function of the health and future prospects of the company.
Each time people talks about their investment in stock market, I would tell them that they are not doing AN investment if everyday they are watching the computer screen tracking their stocks every minutes. Shouting in excitement when the stock when up 1 cent or 2. Not that shouting in excitement is a bad thing itself, but the mindset behind such action is. I too would be shouting in excitement if my stock went up RM1 in an hour !
So, when to learn the very real meaning of making AN investment in stock market? Probably the best time to learn the real meaning of investment is during bull market. During such time, one does not need much persuasion to draw into the bandwagon of excited crowd. However, the learning doesn't really start when one joined the bull market crowd. The learning starts when the market turns for worse. Believe me, you will learn what really is AN investment from that point. Learning from the hardest way is the best lesson you could ever get.
The next time you are about to click buy, ask your self this, am i doing an investment or trading? If your heart say target price is 30 cents in 3 months and then run. That's good and fine. Atleast you know what you are in for.
I had done all that trading mindset, punting mindset, chasing after stock, tips, contra and whatnot. At the end of the day, you would probably get back to square one from where you have started. The only thing you get is .... heart attack.