Is Investing Risky?
Have you ever heard of the following?
“Investing is risky. I have come across people who were ‘burnt’ badly in the stock market and now they are afraid to invest again.”
Is investing really risky?
It depends. Perhaps it is better to illustrate using an analogy.
Taking driving for example. If a person, who has not driven before, were to take the wheel for the very first time. This would be rather risky because there is a high chance that this person may encounter an accident.
However, suppose this same person learns how to drive and finally earns his or her driving certificate. If he or she were to drive now, driving would considerably be less risky because he or she would have probably learned how to drive in a safe manner.
Similarly, when it comes to investing in the stock market, most untrained investors find it risky and get ‘burnt’ because most of the time, they invest without knowing the fundamentals of the company and the stock market. They invest because they got a ‘tipoff’ or because of some random and often subjective criteria. It is puzzling why some untrained investors are willing to risk their hard-earned savings to invest in companies that they don’t understand.
Now consider what happens when one learns the right strategies to invest successfully. This investor would now be able to tell whether a particular company is profitable or just simply losing money year after year. He or she would be able to identify when is the best time to buy or sell a stock.
He or she would no longer risk his or her hard earn savings to buy unprofitable companies. Similar he or she would stay clear of buying companies whose price is currently on a downtrend (unless he or she is ‘shorting’ the stock). This investor would only invest in a stock provided that the stock fulfills a set of stringent and objective criteria. In other words, he or she would only invest in stocks that have a high probability of generating profitable returns.
Would investing be considerably less risky now? You bet!
As what legendary investor, Warren Buffett, once said, “Risk comes from not knowing what you are doing”. Indeed, if one aspires to invest successfully in the stock market, it would be prudent and sensible to first learn whatever he or she can about investing, before venturing into the stock market.