When is buying a share, investing and when is it gambling?
When is investing, wealth creation?
If you’re buying an investment without thorough research then you are speculating based on a story, which is close enough to gambling.
For example, if you’ve bought a share without reading the most recent annual report and quarterly statements of the company then you’re speculating not investing. How can you understand the company prospects without reading their public statements?
If that sounds like the way you’ve been ‘investing’ then you’re not alone but be careful not to delude yourself about your prowess. Any gains you make are luck rather than skill. So don’t rely on your portfolio to fund your retirement and more you would other forms of gambling.
Investing to create wealth
Which leads to the special sauce that distinguishes wealth creation from investing – skill.
When learning something new you can be very thorough, spending hours studying but it takes experience to turn knowledge into expertise.
Knowledge evolves into expertise through repeated and refined practice.
We, humans, have a tendency to confuse action with achievement. To confuse doing something with doing the right thing.
If you want to create wealth through do-it-yourself (DIY) investing then first invest in education, then invest in acquiring experience.
If however, you can’t be bothered doing the study and research but you still want to dabble in direct shares, that’s okay. Just be clear with yourself (and your partner) that your share portfolio is an entertainment expense, like any hobby. Your primary return will be in fun, not dollars.
In my next article, I’ll introduce you to three portfolios for aspiring DIY investors.