By Allen Espejo
Have you read the parable of the talents?
It’s a story about a rich man who entrusted three of his men to handle his talents. He gave five talents to the first one, who immediately traded them and gained five more. The second one was given two talents and in the same manner doubled the talents.
In this parable, I always wondered how they were able to double their investment in a very fast way. Did they invest or did they gamble?
Other than gambling, stock market is one of the most popular ways to double your money fast. Since I’m at it, let me ask you this question, is trading stocks gambling?
During the 2008 crisis, a lot of people got their stock market investments nearly wiped out, including myself. People were withdrawing their money and who wouldn’t?
Warren Buffet said, “Be fearful when others are greedy and greedy only when others are fearful.”
This is not easy to comprehend especially when you see your life savings being wiped out. I’m glad I trusted Mr. Buffet’s wisdom because today, I have more than quadrupled the portfolio I kept.
Having said this, are stocks the best paper asset in the world?
Among all paper assets (stocks and shares, bonds, currency and cash), the stock market is known as the fastest way of growing your money. On the contrary, it is also the fastest way of losing money. If you know well how it works, investing in stock market is not gambling.
When you invest in stocks, you own a share of common stock in a company. In layman’s term, you own the company. It entitles you to a claim a fraction of the profits that the company generates.
Gambling, is taking money from a loser and giving it to a winner. You don’t have to learn much what you are betting in too, you just take your chance. No value is ever created.
Investing in stocks is not for everyone. You have to have a very high risk tolerance because of its volatility. The first time I invested in the stock market, I lost all my money. It was painful.
Remember, knowing something is generally better than knowing nothing. It is crucial that individual investors in the stock market have a clear understanding of what they are doing. It’s those investors who really do their homework that succeed.
One of the best things I learned in my experience is to never chase the market. That’s why I became a passive investor.
There are two ways to be in the market.
1. Active Trader
Active trading is all about timing the market. Through careful analysis, active traders know when to buy and when to sell. Successful stock investing requires dedicated time from the investor. Being an active trader requires a lot of time in studying the market and the type of business. Make sure you have the time to investigate companies for at least a few hours a week. There are a lot of software tools and websites that can help you in your analysis. Without this careful study, active trading becomes nothing else but gambling – a game of chance.
It is very dangerous to pick stocks without first investigating them thoroughly.
2. Passive Investor
This is buying and holding stocks for a long term. The one important thing you need to know is the value of the company. Stable companies often pay dividends to keep investors happy when their stock price does not rise much. Dividends are a great way to earn “passive” income over a long period of time.
Good investors invest for the long term. If you are looking to cash in right away, the stock market might not be a good place to put your money.
If you still find yourself confused, don’t fret, if you don’t have the time to fully understand what to do with your money because having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.
At the end of the day, understand why you want to invest. The stock market can be very volatile, and a bad day can be enough to give you a heart attack.
Just a caution, don’t invest if you are trying to get out of debt. Most especially, never put your money in investments that promises crazy returns. There will be someone out there who will take advantage of “instant money” or “get rich quick scheme.” This is gambling.
The scripture says, “Wealth obtained by fraud dwindles, but the one who gathers by labor increases it.” (Proverbs 13:11)
Wherever you invest your money, I pray that your investment performs well and may you achieve your financial goals in life.
Happy investing!
Alteamor “Allen” Espejo lives in Burnaby, BC where he is a Life Licensed Qualified Practitioner of the Insurance Council of BC, a licensed mutual fund advisor in the Province of BC and a Manager at Desjardins Financial Security Independent Network. He is an author of a book entitled, “Can Faith and Money Mix?” His book is intended to share his views whether spirituality and money can mix — providing several ways on how to handle our finances with a faith perspective.
