Monday, February 16, 2009

Gambling Vs Investment

I remembered reading “Secrets of the Millionaire Mind” by T.Harv Eker sometimes back about how rich people believe in creating their lives and poor people believes that life happens to them. Rich people work towards their wealth and poor people blame everyone for the predicament they are in. Rich people put most of their money to invest and grow their passive income and poor people put a large portion of their money into gambling.

Many of us are sub-consciously working towards for our wealth. We need the money for retirement, children education, car, holiday, etc. We know money is important but how many of us are consciously accumulating it and making sure that it grows at a rate we expect it to be?

I had several clients in their 50s and 60s who took 2 extremes when it comes to investment. Before the economic boom in 2004, they put 20% of their money into shares and 80% into fixed deposits or structured products that give below 2%. When their fixed deposit or structured plans matures over the years, they pump the proceeds into shares. Their portfolio turns to probably 80% shares and 20% cash by 2007. Most of the shares they bought are largely those recommended by their friends for so-called insider tips.

During the past 15 months, they had seen their shares portfolio dropped by at least 60% because many of their shares are probably make up by penny stocks. Many of them start blaming their friends or stockbrokers for giving them the wrong investment advice.

They feel the pain now but they will not learn their mistake just like a gambler who will continue to gamble no matter how much money they had lost. Believe me not, they will not put any money now but will wait until the market boom before investing again.
Why do I say that these investors are actually gamblers?
1) A gambler won before and they know how easy money comes when it win. Money that comes through work is simply too slow. They are not looking forward a 6%p.a returns but looking for a 60% returns in 1-2months.
2) Gamblers cannot accept that they had lost and the only way to get recoup their money is through gambling again. They lost 60% now. They will want to recoup it within 1 years, not 10 years.

I'm not preaching that we should not gamble or speculate in shares. What I noticed is the lack of discipline in most people. They save and invest irregularly. They lacks an investment process and a monitoring system. They need someone to help them in updating their portfolio and to encourage them to follow a proper investment process. Be a disciplined investor and not a Gambler...


Anonymous said...

And based on what do you think is different for him to recieved advice from you(with no practical experience nor success in investment) or his friends (who might have years of experience nad success in investment) or his broker (hey..they are the same breed as you)..

Anonymous said...

Buying funds from insurance agents is like buying stocks , 4-Ds, TOTO. It is not buying an investment .
It is punting on short term basis.
The insurance agents teach the clients to sell when they make 10% and buy the funds drop 10%. Insurance agents are the runners for the insurance companies, the bookies.