27 May 2011

The difference between speculation and investment

While we are trying to differentiate speculation and investment, we cannot deny that there are many people are in 'hybrid' mode. Based on my observation, speculation are a behavior that make you 'feel' that your choice of investment is correct at that point of time. You may change your 'feeling' as and when the market turns. You may think that investment is an easy job as all your investment choice is based on the 'gut feel' you made just now.


For many investors, I believe all of us would go through this process as we often made the investment decision after we think that our decision is correct. But how correct is correct? Results will tell us. One example of speculation: I knew that a company's annual report was 'fake', however I noticed that there are several shareholders in this listed company and I realized that one of the shareholders are a well known businessman with high integrity and capability. I just bet on his capability to send one helper to 'turnover' this co. However, my decision made based on my 'feeling' resulted a very bad loss. This taught me that 'DO NOT BUY INTO A COMPANY IN A BAD INDUSTRY OR BALANCE SHEET, EVEN THOUGH THERE IS CAPABLE MANAGEMENT IN THIS CO'. 

To me, investment is a combination of soft skills and hard skills. It can be easy, and it can be complicated. Based on the one's needs. I have some friends who like to use
Technical analysis to guide them through the investment. But I have a big question on this method as it cannot give me 100% guarantee that I can earn through this method. Perhaps I have no good imagination through the charts, but I have good talent in Figures. Especially Financial Figures.


A financial figure is something written in Annual Report. To me, it is very interesting topic but not for everyone. Some of my friends hate the 'numbers' as their mathematics is not as good as graphic/art. To me, I love numbers and I like to deal with numbers. The moment I see from the annual report or the research report by analysts, I will try to figure out how the management does it. The most important part that I learn from my seniors are Figures can be 'FAKE' and can be 'TRUE'. It is similar to how you pick a girlfriend. Some girls can be 'fake' temporarily in front of you. But they will show their true colors after a certain period. What I did was to put all of the stocks under my 'watchlist'. I will monitor them, observe them, especially the behavior of the top management. I also like to look at the 'face' of the management, although someone will say I am crazy as I cannot judge people by face only.


Yes, I learn the skills of investment through:
  1. By Annual Report - In the report, management will teach you about the industry trend, how they cope with the challenge, and how they will thrive to achieve success. I love boss with great ambition and prudent care of the value of the shareholder.
  2. By Observing how the company doing their business (a.k.a. business model)
  3. Client Servicing is the most criticital business units although the pay is low in this b.u.
  4. Marketing is also very important b.u. although the most important factor lies on the services provided by the co. 
You may also like to share with us how you think of speculation and investment. Drop me your comments below. 

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