“You know stock trading is a form of gambling and speculation, right?”
“No it isn’t! We study the P/E ratio, NTA ratio, cashflow, blah, blah, blah, how can you say it’s speculation?”
“Well, do you do diversification? Do you buy across industries and sectors? How about geography? What if company specific risk hit like director scandal? Or industry wide event like Oil and Gas price downturn? What if geography wide event like North Korean geopolitical tension?”
So obviously stock trading isn’t gambling and speculation. What happens is just this: When we invest alone, we have a tendency to concentrate our investments into one or two things we are familiar with.
Which is not wrong, it is just a limited kind of way to invest. And when we say limited, there are certain aspects of the market we have to know about.
When we do so called ‘investment’, are we aware of the various types of asset classes available in the market?
When we say ‘asset classes’, are we aware of the main classes like property, stocks and bonds?
When we say ‘property, stocks and bonds’, are we aware of the different instruments like unit trust vs direct investment?
When we are aware of all the instruments, all the classes, how then would we do ‘investment’?
When we do investment on an individual basis, our limited awareness contrain us to a single class, single instrument.
There is a study by Schroeders, which says investors are expecting:
1. high investment returns (despite falling interest rates)
2. short investment horizons (despite repeated advice to buy and hold)
Most experienced Financial Advisors know this is not NEW. What happens is most people experience investment as single class, single instrument products with wildly varying performances.
Most people therefore expect investments to be high risk, high gain, short term products.
All of us can remember the stories about how our friend got rich betting on a single stock, single property, single bitcoin, single business venture thru double digit or triple digit returns.
We never seem to remember the other way of slow and steady growth.
Fact of the matter is, most of us just like to retire or fund our children’s education in the most stress-free yet mindful way.
We do not want to worry about losing our money yet we like to grow our money for it’s actual worth.
The first step is to gain clarity of EVERYTHING that’s available in the market. Once we know all the options, then we can construct an allocation and diversification plan. People who like to do this definitely go ahead and do it yourself. For those whose enjoyment lie elsewhere, there is obviously the other option which do not need to be mentioned.