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Is Investing In Stock Like A Roll Of The Dice?

4 February 2010 1,826 views No Comment

Buying shares of stock can feel like a roll of the dice, but the difference to me between the two risks and let it be noted that they are both risks is that you do not have a full view of all sides of the dice when they settle, nor as much control, as you do with the companies in which you choose to invest.  I stress here the word “invest” and make note that it is not the same as a “trade” of stock.  Investing is for a longer-term outlook; a trade is for the short term  seconds, minutes, hours, days, but usually not for weeks or longer.

Investing is making a decision with your money to take an ownership position in a stock, bond, fund, index, ETF, or other instrument, based upon the information you have about it, your objectives and specific goals, your time horizon, your risk tolerance, liquidity and affordability, tax ramifications, and all other factors that affect the use of that designated money and how you should exercise it.  The stock market, likewise, is how people (institutions run by people and their boards of people) react with their money to any given event; it is a herd mentality and, therefore, is subject to the underlying nature of human emotions, behavior, and psychology thus requiring diligent analysis.

It is imperative that a portion of your money be working for you at all times and not just sitting idle.  Keep in mind that no type of investment is successful 100% of the time.  Economic forces that drive down the value of one type of investment may inversely drive up the value of another.  It is wise to look for, be familiar with, and understand the interrelationships between investment vehicles, too; it can add more firepower to your entire portfolio of investments.  Diversification can help protect the overall value of your portfolio.

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