Gambling on the Sharemarket


'I never let my schooling interfere with my education.'  (Mark Twain) 

Note: This section was written at the end of the 1990s and includes references to many people and events from the 1980s and before. We feel that rather than updating it every few years, it retains more charm and historical interest to leave it in its original form. All the important concepts are still relevant today, and apart from CFD trading and short selling which are not covered, it will still serve you well as a broad introduction to and education on the Australian sharemarket.

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Don't ever be told otherwise, investing in shares is a gamble.

Shares can fall and companies do go broke.

Buying and holding 'blue chip' shares, the method commonly recommended as avoiding the pitfalls of market volatility, is clearly one way of minimising the risk, as is the purchase of warrants or put options to protect a portfolio. But the oft quoted maxim that the market always rises in the long term does not mean that you will not lose.

In the 1980s Adelaide Steamship was regarded by many as a blue chip company before analyst Victor Schvets' famous 'emperor's not wearing any clothes' analysis, that saw the rapid demise of the stock. Even the mighty News Corporation was once nearly brought down by a small American bank demanding repayment of a miserable $10 million debt at an inconvenient moment.

One of our readers, John Langer, sent the following fascinating piece of information:
'Remember 'The Deerhunter'? The characters came from a community of steel workers. It was their money that small bank was trying to protect when serving Murdoch with a collection notice.'

The market may always rise in the long term, but consider these two facts carefully.

a/ The 'long term' may be very long term.

b/ The market may have risen, but some of your key stocks may have underperformed the market, or even failed.

Having said this, undoubtedly the sharemarket is one of the best forms of gambling around.




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