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 published his 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 a very
b/ The market may have risen,
but some of your key stocks may have underperformed
the market, or even failed completely.
Having said this, undoubtedly the sharemarket is one
of the best forms of gambling around.