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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Stocks can (and do) create massive amounts of wealth, but they aren't without risks.

Stocks can (and do) create massive amounts of wealth, but they aren't without risks.

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Asoka Samarakone


Expert
Expert
Stocks can (and do) create massive amounts of wealth, but they aren't without risks.

Risk is an inherent part of investing in stocks. People always dream of making a fortune in the stock market, and many do it, but many other newbie investors have lost everything very quickly because of failing to minimize the risk involved with investing in the stock market.
Remember to keep in mind that
Low levels of uncertainty (low risk) are associated with low potential returns.
High levels of uncertainty (high risk) are associated with high potential returns.
People thought that stocks were the magic answer to instant wealth with no risk. Stocks can (and do) create massive amounts of wealth, but they aren't without risks. Although risk might sound all negative, there is also a bright side. Taking on greater risk demands a greater return on your investment. This is the reason why stocks have historically outperformed other investments such as bonds or savings accounts despite their popularity; however, most people don't fully understand stocks. Much is learned from conversations with others who also don't know what they're talking about. Chances are you've already heard people say things like, “he’s got another hot tip..." or "Watch out with stocks--you can lose your shirt in a matter of days!" So much of this misinformation is based on a get-rich-quick mentality.
Some are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk.
What makes the process particularly problematic in the investment field is that there is a lot one can regret. You can fret and sweat over losses caused by taking excessive risk, or lost opportunities caused by not buying a great asset in time. You can also torture yourself about selling too late or not buying enough, or listening to your advisor or friends, or indeed not listening to them. In short, you can be sorry about so many things in so many ways.
In today's world, if you rely on fundamental analysis, brokers advise, share price information, newspaper articles or business channels for your investing or trading decisions, you are asking for a painful experience in the markets.
Bear in mind that while brokers will tempt you with seemingly cheap share dealing, that doesn't necessarily make them the best option for you, nor does it do enough to guarantee trading success.
Most investors have the uncanny knack of doing absolutely the right thing at precisely the wrong time. That's why they sell at market bottoms and buy when things have already run up (and are ready to reverse). There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.
You will not be correct 100% of the time – it’s a fact. Good, experienced traders all know this. It’s a numbers game, and you’ll make some and lose some. The idea is simply to win more than you lose. It is important for you to know how to make the smartest choices possible when investing in stock and even if you does make the wisest decisions, to know how to deal with loss in the event that it happens.
You will likely lose money during this learning process, but if this loss helps you achieve this level of understanding then you can financially afford the loss.
You have to learn the rules of the game. And then you have to play better than anyone else.”
Asoka Samarakone

sriranga

sriranga
Co-Admin
Good one and timely advice for everyone.
Thanks for sharing.
Keep it up.

http://sharemarket-srilanka.blogspot.co.uk/

Trillionaire

Trillionaire
Manager - Equity Analytics
Manager - Equity Analytics
Asoka Samarakone,
Your posts are really great and I love your writing style. I feel like I'm reading a news paper article when I'm reading your writings. Smile
Thanks a lot for your contribution! Keep up the good work!

Tiger

Tiger
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Tkx cheers

manula


Vice President - Equity Analytics
Vice President - Equity Analytics
nice article..thanks

TortoizePlus

TortoizePlus
Manager - Equity Analytics
Manager - Equity Analytics
Thanks Asoka again,

your writings are a mirror to judge your experiance and the age (as it says you are 66 now Very Happy )

gaya


Senior Equity Analytic
Senior Equity Analytic
Thanks,

I prefer to change "High risk high return" as "High risk high Loss"

Wink

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