Blood-bath On Wall Street - Were You Caught ?

There was a recent blood-bath reported on Wall Street which spread to stock exchanges throughout the world. Billions of dollars disappeared overnight. Actually, the reality is, the money didn't just disappear. It was transferred from the naive to those who knew better.

Stocks have always been touted as a good way to make money. The stock market itself has been described as being akin to a living organism, moving up and down seemingly at its own will. This is the result of billions of people buying and selling each day, each with his own mind, and yet also being at risk of being subject to the herd mentality. Greed and fear have resulted in prices of stocks being driven to ridiculously high values, and suddenly crashing down soon after.

Does this mean that we should stay out of the market altogether? It has been said that it is not an investment that is risky, but the investor. A person who does not know what he is doing makes anything he invests in a risky investment. Most people are sensible enough to know not to drive a car without first learning how to drive it. So why not with investing?

An investor is someone who knows what he is doing. He aims to create cashflow from his investments. The investment has to make sense today and tomorrow. Gamblers buy on a stock tip, then pray and hope for capital gains. They have little control over what happens to their stocks and have no Plan B if the market should head south. They get sucked up into the hope of making a quick dollar and panic when things don't seem to be going their way. They would rather be wrong with everyone else than make an independent decision about how and what to invest in.

A true investor does not follow the crowd. He knows what he is doing and makes an individual intelligent decision about what to buy. He knows how to recognise when something is of good value, not only because the price is cheap. A cheap stock may be because the company is in trouble and going down. A gambler would not have taken time to check the details of the company out. A true investor would have spotted the problem and exited early.

Gamblers tend to be speculators. Investors buy to own part of the company. When they buy a stock, they expect to hold it forever. Gamblers hold it for six months, at the most. As result, they also generate high costs in trading and taxes.

What are you in the stock market - a gambler or an investor?

About The Author-- Karen Cheong believes we all have it in us to be rich - really ridiculously wealthy. We just need to learn to unleash the potential. Find out what the rich know that the poor do not. Visit http://www.whymoneymatters.blogspot.com/

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