What does it mean toin ? For some it is quick gains in multiples, for others a sure loss of capital. While the outcomes can be either, is very different from gambling. It is about owning a portion of a profitable company and reaping benefits of this earnings growth as reflected in the changing stock price.
So… it’s not a gamble?
The difference is the homework needed to pick a good quality company toin. It means you have to research the company, understand cashflows, profitability and the business’s future prospects before .
It’s like starting your own venture ormore in an existing one. Not only does this require adequate time, but also an understanding of the business details.
What if you are not equipped to do this detailed research? That’s what qualified fund managers who look after equity mutual fund schemes are there for. If you don’t have the ability to filter and buy good quality companies, leave the job to professionals.
becomes a gamble like a game of black jack, when you without understanding what you are buying. Just like in black jack, the outcome becomes a matter of probability – high gains or high losses, can be either.
It’s like starting your own venture or investing more in an existing one. Not only does this require adequate time, but also an understanding of the business details. What if you are not equipped to do this detailed research? That’s what qualified fund managers who look after equity mutual fund schemes are there for. If you don’t have the ability to filter and buy good quality companies, leave the job to professionals.
Staying invested compounds returns
What happens when a good quality company sees its stock price fall sharply? This can happen for several reasons, some common ones are, missing quarterly profit targets, leadership change, announcement of merger or takeover or any other relevant corporate action. In such cases, the collective wisdom of investors – better known as the market – perceives the change as good or bad.
If the perception is that earnings will be impacted negatively resulting in losses to the business, the stock price falls. Usually, the immediate stock price reaction is exaggerated – fall (or rise) is sharper than the eventual impact on earnings. For well-managed, long standing businesses, such events rarely result in a closure of operations and usually the company’s profitability bounces back in a quarter or two. What you need to do is analyse the situation and wait it out.
Once again, if you don’t have the ability to do this – then hand it over to professionals who manage.
Remaining invested to ride through the business cycles which impact company profitability is important. This means that returns will take years to multiply. Staying invested through long periods for gains is the second aspect that differentiatesfrom gambling.
Done right,is not a gamble; follow tips and trade daily, then you are gambling. For rather than gambling, do your research or find a who does and remain invested.