From the essence of the stock market, it has a very useful function - achieving a positive cycle. If more and more excellent companies go public in the stock market and these companies are in a long-term upward channel, they can expand their Operation through financing from the stock market, creating more Commodity and services, and investors can realize wealth appreciation by investing in these companies. When people's wealth increases, they will consume more, and this consumption will drive companies to further expand production, which is a typical positive economic cycle.
1. The outcomes of investment and speculation are different.
The stock market is a place for resource allocation that can mobilize many elements of society, which is an important function of the stock market. However, participants in the stock market are generally divided into two categories: one is investors, and the other is speculators. Investors focus on the company's future development prospects and operational conditions, while speculators focus on the short-term buying and selling behaviors and psychology of other participants in the stock market.
What differences will there be in the results of investment and speculation?
For investors, especially those adhering to value investment philosophy, if the profits of the invested company can achieve long-term continuous growth, the investment returns obtained by the investors will continue to increase. Speculators only predict the short-term trading behaviors of others, the rise and fall of stock prices, so in the end, it will be a zero-sum result. The profits gained and losses incurred from all speculators buying and selling stocks will sum to zero. The behaviors of speculators will not affect the economy or the profit growth of companies; it is merely a game among different participants. This is the biggest difference between speculation and investment.
Although speculation cannot be completely eradicated in the stock market, it is the investors, especially value investors, that truly drive the long-term development of the stock market and achieve a positive cycle. In the development history of Capital Markets, speculation has caused a crisis every so often, such as the bursting of the Network Technology bubble in 2000 and the Global financial crisis in 2008.
For ordinary investors, a relatively simple and feasible method is to invest in Index Funds or funds with a long-term excellent historical performance. Holding Index Funds for the long term can yield returns that correspond to the overall economic growth rate, because in the process of sustained economic growth, the main index of the stock market can represent the overall development of listed companies in the economy and reflect the overall performance of the economy.
2. Establish your own investment competency circle.
Investors, especially those who adhere to the value investment philosophy, focus on conducting thorough Fundamental Analysis to evaluate their invested companies' future prospects and performance.
First, investors must establish their own circle of competence and truly understand the symbols they are investing in. For example, what is the competitive environment of this Industry, and what are the Industry prospects? Investors need to clarify the sources of profits for the company, the likely profit situation in the future, the company's position in the Industry, how the management operates the company, and whether the company's competitive advantages are sustainable. This process can be regarded as building an investor's circle of competence.
Second, view the enterprise from the perspective of Shareholders. Buffett once said that buying stocks is essentially buying a company. Investing in a company's stock means you become one of the Shareholders of that company. When you see yourself as an owner of the company, you will become genuinely interested in it, for instance, discussing management and human resource systems with employees during company research, or obtaining more information about the company from its upstream and downstream partners.
Third, lead your research based on your interests and opportunities. Each person's points of interest, circle of competence, and investment opportunities are different, and investors should not blindly follow others in their research. Investors only need to focus on their own matters and thoroughly investigate the investment opportunities and symbols they are genuinely interested in. Ultimately, what truly brings you returns are the symbols you thoroughly understand and make correct judgments about. In the end, the research results and investment knowledge accumulated by investors over the long term will gradually form their own circle of competence.
Three, characteristics of value investors
What characteristics do investors who can persist in value investing generally possess?
Firstly, value investors generally have an independent character, focusing on their internal judgments rather than being overly concerned with others' judgments. Capital Markets are constantly changing, and investors receive information from various sources, making them susceptible to distractions and easily influenced by group emotions, so independent judgment is crucial.
Secondly, value investors need to be relatively objective with low emotional fluctuations. Investing is objectively analyzing the value, competitiveness, and Cash / Money Market of investment symbols to determine the future prospects of companies over the next few years, so investors must maintain an objective and rational attitude while continuously learning.
Again, value investors need to be patient, but also decisive. When holding a symbol with long-term positive prospects, investors must have enough patience to withstand the impact of short-term fluctuations and achieve long-term holding. When a good investment opportunity is found, investors should also be able to take decisive action and place their bets without hesitation.
Editor/lambor
