Bourse, NOT Horse!

In a country where less than one percent (1%) of the population invests in the capital market, it is not uncommon for people to think that investing is pretty much like gambling. You know, like betting on a horse or going to a casino. But reading about people who are jumping out of building windows due to stock market losses makes one wonder if investors in more developed countries know any better.

It must be my “cranial capacity”, but quite frankly, I could not see the similarities between a bourse and a horse! Or, maybe I need to be a rocket scientist to see that a “game room” is the same as the trading floor?

Let’s try this with a wee bit less of scorn.

Talking to a number of officemates who heard a story or two about people who got burned in the securities market, I had to scramble for some analogies that might help me explain why I suddenly became so “suicidal” (that I am willing to gamble away whatever little money I have saved or “allocated”).

I told them that I could be miles and miles off the mark, but here is how I see the difference between the casino and the stock market: In the casino, it is in the interest of the gambling house that the bettors lose – so the house can win. In the casino, you are betting on deck of cards and contraptions that may or may not be rigged. In the casino, you are just betting plainly against the odds. In short, in the casino, nothing works in your favor aside from the occasional luck.

In the stock market, you don’t have to lose for the exchange to win. In fact, the more you win the more money the stock market makes. In the stock market, you are betting on companies that employ thousands of workers and executives whose common objective is to make a lot of money for those companies. And since your bet in the stock market comes in the form of shares, the more money those companies make, the more money you make. So, what similarities are we discussing again?

Oh, of course, people make money and lose money in the stock market. It is like gambling, remember? Except, in the stock market the odds are in favor of the bettors winning – not losing.

From what I have personally seen so far, you are most likely to lose money in the stock market if: 1. you treat it like you treat gambling, (meaning, you just go in there and place your bet without studying the stocks you are buying); 2. you don’t allow your money to grow, (meaning, you have a very short investing horizon – which further means that the money you are using in your investments is probably the same money that you will immediately need); 3. you are too greedy, (this means, that the stock has already ran its course and you still want more from it) 4. you are too scared to take the risks, ( which means, you are too quick on the sell button).
Studying the stocks you are going to buy may sound a bit too daunting. I will not argue the point that this job is probably better left with the experts, but a bit of a layman’s exercise of cognitive power will not hurt either.

If you frequent the mall and you noticed a restaurant that is always filled with customers because of good food, good service, good ambience and affordable prices, and you heard that they are going public thru an Initial Public Offering (IPO) so they can build more branches, and your broker asked you if you would like to buy their shares, would you buy them?

Suppose the shares that your broker is asking you to buy is that of another restaurant which has a good sounding name, not so good food, very expensive ambience with rather expensive prices and a service that is a bit snobbish. Let’s say this restaurant has already been there awhile with a good number of branches all over the country but whose tables are almost always empty. Would you buy their shares instead?

It seems like I don’t run out of confessions to make, so let me make another one here: At the risk of sounding too simplistic, I am trying my darn best not to sound like a professor or an expert (both of which, I am not) in my posts. My undying wish is to be able to bring down the level of discussion on investing to “chat-room” level in the hope that I will be able to encourage more investors among those who, more than anyone else, need to learn how to invest.

That having said, let’s try to go into the electronics business. Using the same standards on popularity (except, of course, you cannot eat cell phones and gadgets) as applied in an electronic “thingy” plus maybe ease of use and after-sales service, durability, dependability and nice designs, would you rather buy the stocks of a least known competitor whose products are, say, half as bad as the company we just described?

Or, in the case of mobile phone service provider, will you buy shares from a company which services are known more for causing more expletives (due to drop calls and limited coverage) from coming out of our mouths than for singing praises? Or would you go for that company that already has a respectable reach and area of coverage, yet still continue to build cell sites to further improve its services?

Okay, to accountants, economists, mathematical gurus, and financial analysts (who may, or may not be very comfortable with math and related disciplines) numbers is still the universal language. They will be checking out ratios of one company as compared to the next or as compared to industry standards (and all that dance) and I’ll say all of that are important (maybe one of these days we may even learn how to judge whether the financial statement we are studying is not done by unscrupulous people like those that figured in the world famous WorldCom scandal) but in the meantime, let’s start with the signs that are visible to our naked eyes.

We are pushed closer to the losing end if we cannot recognize things for what they are.

We eventually have to learn everything we need to learn (to a certain degree) to make the securities market a safer place (for us) to make money, but while taking our “baby-steps” there are things that we can do (initially) to make certain that we are investing in a bourse and not betting on a horse.

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