Learn to Differentiate Between Investment And Speculation

Before you can think of investing in stock market, it is necessary to answer a couple of basic questions. These questions are, “How you should invest?” and even more importantly, “Why you should invest?” If you don’t know how to invest, you need to get a hold of a few basics about investment options which suit you and how you can manage your market investments efficiently. However, if you can’t find an answer to the why, then it’s better you keep your hands off any market-related dealings.

It is easy to be overawed by the blinding dazzle of this market and invest in some fancy stock with dreams of making a fortune overnight but if you let your saner side prevail, you will realize sooner than later that it is simply a recipe for disaster. Does it mean that stock markets are not meant for an average investor? The answer is an emphatic NO. You just need to have the right reason to invest if you are looking to make the most of your investments. The next question which arises is that why is the desire to make a quick buck not a good enough reason to invest, the answer is because it is not called investing but gambling or speculation.

Speculation should be avoided at all costs if you are thinking about making an investment in the stock market. Now what constitutes speculation? You buy a lottery ticket and go home dreaming about all the stuff you can buy and things you can do with the prize money and the next day you wake up to see your dreams evaporate in thin air, well, most of the time. Buying a stock without knowing much about the company to which the stock belongs, the nature of its business or market condition is nothing but speculating or putting your money on the line.

A lot of people commit this mistake and invest in something which “is sure to yield fantastic gains in a couple of months or weeks or even days” according to some self-proclaimed market expert. It is also common to invest in something just because everyone else is. This is called the herd mentality. This is exactly the kind of thing that you need to avoid because there need not be much reason behind everyone making a run for a particular stock and by the time things even out, a lot of people end up losing their accumulated life savings simply because of their overenthusiastic approach.

It isn’t that seasoned investors never face a downturn or do not suffer losses but what separates them from most others is that they usually follow a well-defined strategy to minimize their losses. They invest to achieve reasonable long-term growth to help secure their financial future and this is what helps them adopt a more realistic approach to the idea of investing in stock markets. Before buying a stock, they study what a company is actually doing, what services it provides or what kind of products it manufactures and to which market it caters. The future growth prospects for that type of product or services can also give a fair idea of how the stocks are likely to perform.

Even then, no one stock can be relied upon as a safe investment and instead one should look to develop a diversified portfolio with investments in selected stocks and other financial instruments as well, if possible. This would help secure your investments and minimize losses to an extent. To ensure that you are doing it right, you can seek assistance of a professional advisor for the same.

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