Gamblers are speculators that buy shares without understanding a company. They buy shares based on hearsays, rumours, recommendations from brokers or friends, hoping to ride on some good luck to make quick profits from the stock market. They totally don’t understand share analysis techniques, the economy nor the company itself!
A trader on the other hand, would be a person who uses the shares/stocks like business inventories. He/she buys shares at a lower price and sells them at higher price to pocket some profit. Just like what a normal merchant does, buying and selling goods (in this case, the shares). A trader normally uses some kind of stock analysis techniques such as technical analysis (using charts to predict share prices) or fundamental analysis (a technique including understanding a company’s strengths and weaknesses to derive at an estimated price of the company), to trade shares.
For an investor, buying shares is investing in businesses. I don’t have the capital and license to start a bank in Malaysia, thus to get into banking business, I buy shares of banks. I don’t own land for plantation to produce crude palm oil, so I purchase shares of plantation company. I don’t have model and technology to explore oil wells, therefore, I invest in shares of an oil and gas related company. I can’t start a telecommunication company to provide broadband and telephony services, so I hold shares of such company. I don’t have the time and resources to get a KFC franchise, I opt to buy KFC shares. All these made me part owner of bank, plantation, oil and gas, telecommunication and fast food businesses.
Buying shares is very easy. The question is: What shares do you want to buy?
To an investor, the logic is simple. You don’t want to start a business where the future prospect is not good or where there is no demand for your product/service. You want to get into a business where people are satisfied in using your product/service, and will continue to buy and use your company’s product/service for a foreseeable future. Are there demands for your product/service? Will your product/service become obsolete? Will your business model become outdated? Is there a growing market for your product/service? Will your product be too dependent on a single supplier or single group of customers? These are some important questions that you need to ask and answer before you start a business. So, the same concepts apply to investing in shares.
One of the companies that I have invested in is the Axiata Group (Celcom). One of the main reasons I bought this company's shares last year is that almost everybody uses telephony services and internet. With the smart phones getting more popular and the booming of the young, technical savvy generation, there will be more demand for these services. Besides that, Axiata Group has not only well established itself in the Malaysian market (ranked second after Maxis), but also has marked its presence in the important, growing, huge market of India, Indonesia, Sri Langka, Bangladesh, Cambodia, Pakistan and Singapore. Everybody will still be using mobile phones for years to come, with phones getting smarter and smarter. Many people just can’t live without this gadget! So, the demand for telephony and internet services should be growing. It’s good to be in such business.
In short, buying shares can be a form of gambling, trading or investing. I am an investor. What about you?
The purpose of this article is to share with readers the simple logic and reasoning of investing in shares. However, there are many other factors that we need to consider before investing in a particular company. It’s my interest to continue to share with readers other investment pointers in future postings.
[Contributed by C.ky]
[Disclaimer: This article serves an educational purpose and in no way, constitutes to a recommendation to buy Axiata Group or KFC shares.]
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