We
must avoid speculating while investing stock markets. Invest in stocks after
proper research and after checking the fundamentals, competition and future
prospects of a company.
A lot of folks will be transformed into angry
and annoyed intellectual after reading the topic of my article. And they will
have to be placed over some liquid refreshments to bring their temper down. But
that's alright as this whole routine is something we have been exercising
for many years now.
Dictionary meaning of Speculation is 'engagement in business transactions
involving considerable risk but offering the chance of large gains, esp.
trading in commodities, stocks, etc., in the hope of profit from changes in the
market price.'
In my view, Speculation is a state of mind. The only difference between an
investment and speculation is not what an investor does but to what he
wants and what his level of knowledge is. For example, Someone tells you
that X stock is going to go up and you just go ahead and buy it without
any further research. By comparison, someone else could know everything about
X, it's prospects, the industry, it's peers and come to the conclusion that
it's a good buy. Clearly, the very same action, depending on how much an investor
knows, could be intensely speculative or could be a carefully considered
investment.
A carefully taken decision not only reduces the risk of loss but it also gives
you a confidence to hold on to your stock if there is a fall in the overall
market. There is nothing wrong in checking the calls of various financial
advisors on TV or in some Free
Stock Market Tips but you must do your own research and
check all the important details of company, its competitors, valuations, future
prospects et cetera.
Are you, in this sense, a speculator? Here are a few checkpoints. The more of
these you answer yes to, the closer you are to being a speculator:
a) You never try to balance risk between different investments.
b) You buy stocks of companies without a clear idea of how their businesses
work.
c) You choose which new issues to invest in based on the ads of those new
issues.
d) You buy stocks because they've gone up.
e) You sell stocks because they've gone down.
f) You think a stock with a lower price is cheaper than one with a higher
price.
g) You think the previous checkpoint is a mistake.
h) You answered yes to most of these checkpoints and yet you are sure you are
an investor and not a speculator.
