Wednesday, February 2, 2011

Investment or Speculation

Similar to traveling, investing need to have clear direction where we want to go. A ship without direction in the middle of sea will lost finally. Are you invest for regular income and cash flow or invest for capital gain? Many people say they want both. The reality is, you can choose only one, either regular return of 9 to 10%, or something not regular which can give you more than 100% or lost all your capital.

Not many want to choose investment return of 10% from dividend receive, they think it's too small the return. Almost 80% of people think that they can buy low and sell high to gain from capital return. However, many of them change their mind if after they buy a stock and the share price fall below their buying price. They dare not cut lose, but continue to hold until the lose become widen, some even exceed 50% of their capital. Some even think that they can get the dividend and hope one day the share price will recover.

If you are choosing to gain from capital appreciation, bear in mind you need to set the cut lose point should the stock price go against the direction. This is very important, because this will protect your capital from further loses. Speculation is something either you win or lose, the rules is try to win 6 or 7 times out of 10 then you will still gain in long term. There's nothing in the middle, where you want to gain from capital then suddenly change your mind to gain from regular income. As only certain stock can be invested for dividend, some volatile stocks are not suitable invest for dividend.  Have you set the clear direction?

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