Gambling on the Sharemarket

Part 1 - INTRODUCTION

I never let my schooling interfere with my education.
  Mark Twain 

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.

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.

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.

Continued...

 

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