The thrills and spills of gambling in the stock market

The thin fine line between investing and gambling
There is a thin fine line between investing and gambling and I think I crossed that line somewhat during the last few weeks or so.

I have been analysing my own investment decisions and other than one major decision to buy into SPC which was mostly due to luck and a bit on peak oil prices, most of my other decisions have been largely hit and miss affairs. My portfolio is still performing decently around 8% return but mostly due to the stellar results of SPC. Hence, you can see that the other investments having been so hot. :-(

The stock market can be a seductive place where you can match your wits and money against another person or institution. You buy, they sell. They buy you sell. Now because NO-ONE can predict stock prices consistently, stock prices reflect all available information that flows into the market via a random walk. Thus, your guess really is as good as mine in terms of where stock prices will go day-to-day. Who would have know that SembCorp Marine would suffer such a huge foreign exchange loss due to unauthorised foreign trading activities?

Hence, when I stray from the path of investing in dividend yield stocks and start punting on speculative plays, the gambling motive supercedes the investment motive.

Gambling is fun!
I admit it, the thrill of seeing the prices of the stocks you just bought go up over the next few days and weeks is exciting. It strokes your ego and makes you feel that you have "beaten" the market. But during times of corrections, when your stock price puts you at a paper loss, you agonise over whether to cut loss or hold. I realise my recent trades have been more speculative in nature and hence have decided to take a short break from this trading mentality because I am not good at trading.

It is risky because the commissions more than wipe out the capital gains from stock price appreciation of a few ticks.

As the end of the year beckons, I realise I have to cool down my itchy trigger finger that wants to buy and sell to make a quick buck. That is NOT the way of investing for the long-term. I have since pared down my equity stakes to around 70% of my portfolio in the market as majority of my stocks are still blue-chips that should move in tandem with the STI. The other 30% will be channelled back to safer and boring treasury bills and time deposits to balance off my portfolio.

Knowing yourself
Knowing yourself is important in your journey towards financial freedom. Sometimes you can be so caught up in the excitement of "making" money on investments that we forget that the ultimate first rule of investing is NOT TO LOSE MONEY. Beating inflation with well placed stock picks can work but you need to consider the thin fine line between investing and gambling / speculating!

Be well and prosper!