Gambling Vs Investing in the Stock Market

By Jason Fittler

Education is the key to success in any endeavor, investing is no different.

After the Global Financial Crisis many people would now consider the stock market a high risk activity and as such liken it to gambling.  This fear is linked to your knowledge and understanding of the stock market. The truth is that most people do not understand the basics. When it comes to investing in the stock market they rely on information obtained through the media, friends, family or their own limited experience.

The majority of investors in the stock market have an experience like this, you get a hot tip from a friend on a stock, you invest a couple of grand looking  for a gold lotto outcome, the stock goes bust you do your money and from this one experience you determine that the stock market is high risk. The fact is what you just did was gamble; you made an uneducated ill informed decision and lost money. Much the same as betting on a horse this is not investing.

The stock market is indeed a complex place
, for us professional investors it has taken many years and countless hours of study to start to understand the stock market. The following holds true for investing;

1. You must have professional advice, the stock market is complicated and you will need help to be long term successful.
2. Everyone who has a super fund is invested in the stock market as such everyone should seek to educate themselves more about the market.
3. There are three types of investments, cash, shares and property. You should have a little invested in each.
4. You do not invest in the stock market you invest in companies such as BHP, Woolworths, Qantas, NAB and Telstra. These are real businesses which you use in your everyday life. Next time you pay your phone bill, stop and think that your money is going to a Telstra shareholder. As such it is important to pick the right company.
5. You will have losses, accept this and move on. The same holds true for property, anyone who tells you different is trying to sell you property.
6. You do not hold individual stocks forever; you can buy and sell a stock more than once. It is important to take profits and turn the money over, out of stock which have reached their potential and into those which are still growing.
7. Sustainable high dividends are a must; if the income of a stock is high then the price will move up over time.
8. Focus on reasonable returns, an average return of 10%pa is outstanding over the long term.
9. Avoid hot tips, 99% will go nowhere. This is gambling.
10. Take a long term view; this is harder than it sounds. Those who did this during the GFC are well in front. Those who panicked and went to cash are either hoping for a dip back or complaining that the stock market is high risk.

Gambling is a high risk activity done for fun, investing in the stock market is a long term strategy to provide you with an income stream to allow you to improve your lifestyle.  

When you need professional advice call us, (07) 4771 4577.