Embracing stock market investments

Today, I will take-time off from the Microfinance Business to use this column to demystify the fears many people hold as they think of investing in stocks.

A stock market is a public entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange. Stock market investing is similar to gambling. This is probably the worst and one of the oldest, most pervasive myths surrounding the stock market. In fact, many people do not even realize they hold this belief. Yet unknowingly it appears in their words when they say things like, “You’re betting the stock will go down” or “You’re betting the stock will go up”. There is a major difference between the two. While gambling is a game of luck, the market investing has a pure scientific basis. There are various scientific methods available to determine whether the stock is worth investing or not. But there is no such thing when it comes to gambling.

The real fallacy here is the assumption that the investor is betting. Betting is the exact opposite of what investors do. Investors spend their life learning and educating themselves about the investment they are about to make. Then they proceed to invest, trusting that their education was correct. If the investment goes against the investor, the honest investor still will not say, “I bet wrong”. The honest investor will say “What can I learn from this?”

The truth is that anyone who proceeds into any area of life without being properly educated could be seen as a gambler. But the more appropriate term would be foolish. To illustrate this point, let’s take a person learning to drive a car. If the person has never, ever, driven a vehicle before they may assert, “Since lots of people do it, so can I.” But the foolishness comes when the person gets behind the wheel of a car and attempts to drive without first learning anything about driving a car. We could easily say that this person was gambling with his life, but the truth is it’s simply foolishness.

Investing in the stock market is the same way. Millions of people hear how large amounts of money are made in the market. They see investment advertisements on television, and one day think “I can do that too”. Truth is they CAN do it too - but only after they learn HOW to do it. For an educated investor, putting money into the stock market is an educated, analytical, thoughtful decision. And yet for the uneducated investor, doing the same action is... well, foolish. Becoming educated first is the best way to successfully invest in the stock market.

Predicting” the Stock Market is Impossible. On the heels of the assumption that investing in the stock market is gambling comes a follow-up myth - “Predicting the stock market is impossible”. Again, this fallacy comes down to the lack of education.
For YOU to predict the stock market may be impossible, but not specifically for every person. In fact, since the beginning of the stock market many investors around the world have successfully “predicted” the next moves. Predicting the stock market is not nearly as mystical as one might think. In fact, the market moves in very predictable, repeating patterns over and over again. And once a person is trained to watch and recognize those patterns, that person can also predict the next move with reasonable certainty.

Stock investing is meant only for the rich. In fact, the opposite is true. Many investors, like the American Billionaire Warren Buffet, have become rich on the basis of their investment in stocks. Start small. Make small regular investments in the stock markets. Select good companies with strong fundamentals and hold them for a long term. Then watch your investments grow.

The writer is a market and product specialist
were.nathan@gmail.com