The Business of Investing: Speculation or Analytical Investment?

-Sanket Sigdel Majority of Nepalese consider investing in stocks as gambling with funds and find it difficult to differentiate investing from speculating and gambling. Without understanding the odds of engaging in speculation, which might lead to bankruptcy, most of the Nepalese believe that stock market acts a platform to “get rich quickly”. Moreover, Nepali investors prioritize investments in real estate, gold and deposits before they jump into trading shares because it takes more effort to invest in the later. A strange misconception is found to be prevailing in the market such that one can only make money by investing in stock through access to insider tips or else luck must favor the profit-seeker. Moreover, people including retail investors think that stock market is a game made for big sharks and small fishes will always lose. As a result, number of people in Nepal who think that wealth can be created by investing in stocks through pure fundamental research is extremely low. The huge advantage of starting a investment business is that an investor with a minimum capital of Rs. 1,00,000 can participate in the gains of a large multinational like Unilever as easily as he/she can be an owner of high return scripts like of Nabil Bank script. On the other hand, it is difficult for small entrepreneurs to bring large amounts of capital if they had to completely setup other businesses from scratch. Any investor who buys stocks thinks of himself/herself as being an owner of respective business whose fortunes are tied to the earnings and growth potential of the company that he/she invests in. He/she thinks that stocks are ownership rights to business bought with limited available capital, however, in the short period, the value of those shares could rise and fall without any reason. In contrast, people who buy shares for a few days or even weeks with short term profit-booking in mind are more dependent on the mood and sentiments of general investors in the market rather than on the fundamentals of the company. Moreover, various cases show that  those investors who channel funds in one big investment idea every year or so make more money than people who switch and bet in stocks every alternative day. People engaged in short term trading are actually playing a game of chance as most short-term traders engage in buying and selling shares because they are attracted by the beauty of fluctuating prices rather than the objective of making big money. Most short-term traders base their buying and selling strategies on technical analysis which produces buy and sell signals on the basis of charts, moving averages, head & shoulders, breakouts and breakdowns, and such other tools. While these tools are essential for people who are focused simply on short-term trading, relying on these kinds of strategies will not allow an investor to make big money from the market. Thus, the business of investing should rely on buying stocks that carry a potential to appreciate 10 times and not on the ones that promise a random 10% up move.