Tuesday, 15 October 2013

Quote for the day

"Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." - Fred Schwed Jr.

15-Oct-2013 CSE Trade Summary

Crossings - 15/10/2013 - Top 10 Contributors to Change ASPI

Following Stocks Reached New High / Low on 15/10/2013

Why Are You Playing The Markets?

Is it entertaining, educational, or do you mean business?

I've been thinking about which of these things -- education, amusement, or enrichment -- is the prime motivator for those of us who play the markets. To put it another way, are we market mavens because we find the markets entertaining (whether we admit it or not), because it's educational (i.e. intellectually stimulating), or do we really mean business when it comes to making money?

Investing is Entertaining
Don't laugh, but many of us do find market-watching entertaining, or "amusing". It's just that most of us don't admit it. And while I wouldn't advocate treating your investment portfolio purely as a pleasurable "hobby", as hobbies go it need not be that expensive compared with other hobbies. The £1,000 fall (for example) in your portfolio value this year may well be less than you would have spent on the alternative of golf club membership fees or windsurfing equipment.

I don't play golf and I don't windsurf, so I watch the markets instead. And unlike those alternative hobbies that are guaranteed to drain my cash, my mastery of the markets could lead to a profitable outcome. Speaking of my "mastery of the markets" (I told you not to laugh) leads me to the fact that...

Investing is Educational
Watching the markets, and more specifically pitting your wits against them, can be very educational. Not only in terms of learning about balance sheets and technical indicators, but also in terms of learning about ourselves and what makes us tick. How do you react psychologically when your investments rise... or fall? What can you do to take the emotion out of investing?

What have you learned so far at the "Investment School of Hard Knocks", and how are you making sure that you don't make the same mistakes again? If you're doing well, have you codified the "rules of the game" in some kind of trading or investment plan so that you can continue or repeat your success?

Playing the markets -- by which I mean "investing sensibly", of course -- can be as intellectually stimulating as watching your favourite quiz show on TV or doing the crossword in The Times, but potentially more rewarding. Which leads me to...

...but we really mean business!
There's no shame in admitting that you you find market-watching and participation entertaining and fun. In fact, many great businessmen (and women) have said that they got rich by setting up a business to do exactly what they would have done "for nothing" purely as a hobby. If you can make your hobby your business, it's a potential route to riches.

There's nothing wrong with treating investment as the ultimate educational game of "strategy" (and, let's admit it, "chance") -- you versus Mr Market. Many successful people go on running their businesses or playing the markets way beyond economic necessity, out of sheer love of the game. I'm sure Warren Buffett would prefer to stay intellectually stimulated by minding his investment interests rather than by singing nursery rhymes in an old peoples' home. (No offence intended to Mr. Buffett, who -- as far as I know -- is nowhere near ready for the alternative fate.)

So playing the markets can keep us amused and educated, and there's nothing wrong with either of those things as long as we're careful, but if we're being brutally honest most of us are (or should be) playing this game in order to become enriched. We really mean business, and just like any other business, the whole point is to make a profit -- either through capital appreciation, dividend income, or (ideally) both.

Bottom line
I've argued that watching and playing the markets can be entertaining and educational as well as business-like. But which is the primary motivator for you? Are you doing this for fun, for the intellectual challenge, to make money, or all three? Be honest!

Edited Article of Tony Loton
Published in Investing on 11 April 2012