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Speculating or Investing?

Easy way to earn money in stock market.


" I received some insider news yesterday. They said that Company A will release a fantastic quarter result soon!", "Eh, I heard that Company B will receive a big project from the government."

When you start trading, I am pretty sure you will come across a lot of these situations. So-called insider news will pop out here and there. And definitely you will see some other investors discussing about it, or even worse, take that rumour for real and start buying in that stock. This is what we called speculating. Speculate happened when you ignore the unforeseen risk and start to buy in stock, hoping to gain big profit in short time.Generally, if you act as below, you are already speculating:

1. You buy in a stock according to unverified rumours.

2. You wish that the stock that you just bought can fly high in no time.

3. You just want to hold the stock for few days, or few weeks and sell as long as it makes a little profit.

4. You never do proper research and homework on the company.

5. You do not really understand the business of company.

6. Your action to sell and hold the stock is easily influenced by others because you have no faith at all towards the company.

7. You fear and worry when the price drops below your purchasing price. 

All these are the characteristics of a speculator. They buy stock based on "insider news". They buy in stock in hope of high return, without judging and determining risk of a stock because they are blinded with the unrealistic profit gain. Greedy and emotional is controlling their mind and they could not think wisely. 9 out of 10 cases, a speculator fails and loses money to the market. The reasons are simple.

1. How true could the insider news be? Imagine yourself having an insider news of Company A will have good quarter result, will you be so generous to tell and announce to the whole world? Be realistic! (At least I won't.)

2. A speculator has no faith in a stock. They are satisfied with a small profit gain. This is because they do not know the intrinsic value of a stock, and do not know how far the stock price can continue to rise. As a result, they would rather lock in their profit as soon as they gain profit. Hence, they always make small profit gain, but never big return.

3. However, they couldn't be so lucky to get it right all the time. Sometimes, the stock they speculated will drop. And because they believe in insider news so much, a speculator will be too heavy hearted to cut loss. As consequence, they trapped themselves in the falling stock, resulting in big loss that wipe out their small profits.

Speculate or invest? It's just a matter of personal choice and discipline.

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