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Investing in the Share Market - EVERYONE'S Option

Take a look at the people in the street. Sometimes it is relatively easy to guess what they might do for a living and possibly their level of wealth simply by their general appearance. Whether they seem rich or poor, a stranger might respond to them in a way reflective of their own perceived status, and vice versa. The truth is, however, that each only imagines who or what the other is and acts accordingly.

That’s the way the share market works. The rise and fall of prices is less to do with actuality than it is about trends and innuendo. The sudden jump in a company’s listed shares simply means that, at a particular point in time, they are in demand, driving the price up. This may be the result of the anticipated success of a long-awaited takeover bid. On the other hand, it could just be the normal fluctuation in the profit-taking cycle.

Anyone considering the share market as an investment option should accept some home truths. First up, it’s a gamble. The only ones guaranteed to make money out of your flutter are those who charge for setting it up. Even if the latest prices show you are turning a profit, by the time your shares are sold, it won’t necessarily be for the figure you banked on because it will most likely already be on its way down, thanks again to the profit-takers. The share market is an extremely volatile environment.

Second, and most important, it has to be regarded as strictly business with no room for sentiment. Buying into a company that holds some personal connection is unwise. Maybe it’s a local industry, or one that a relation works for. The wines it produces might be a favourite and, of course, having shares in the vineyard is a good talking-point over dinner. But this kind of indirect loyalty could influence the advisability of unloading the shares at the right time, especially if the firm is heading for a bad patch. Taking profit in this case could seem like putting the boot into an old friend who really needs his mates to weather the storm with him. In business, however, there are no friends. When it’s time to get out, you have to do it and move on.

Perhaps the least considered aspect of share trading, especially for those contemplating it for the first time, is the effort necessary for success. Timing is essential, so it’s no good buying a few shares and checking their price once in a blue moon to see how they are going. Even if they are still at par, or have improved some, there may have been a period during the month between checks when they would have made a nice profit, had they been sold at that point. Anyone thinking of investing in the share market must be prepared to keep a close eye on their portfolio, preferably on a daily basis.

On the face of it, that doesn’t sound too difficult, but it’s only a small part of a much bigger picture. Whether the holding be 100 shares in a single blue-chip company, or 10,000 spread over a number of lower-priced, more volatile listings, the same rule applies – everything affects them and, in turn, the chance of profit.

To better explain this, let’s take it from the beginning. It will cost money to set up, cash money that is available from existing funds. Anyone borrowing to gamble is asking for trouble. Assuming there is a cash surplus on hand that could be invested, the over-riding consideration has to be – will it matter if the entire sum is lost? If “yes” is the answer, it should be left where it is, or transferred to a safe option which turns a modest profit, while keeping the principal intact and secure. However, those willing and able to take the risk are on the threshold of a stimulating experience.

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