Gambling on the Sharemarket
Part 1 - INTRODUCTION
'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.
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.
Continued...
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