When we get bored, some may seek excitement from activities which we normally wouldn’t commit to. A lot of people may turn their attention to the stock market as they’re forced to take unpaid leaves or work from home during the COVID-19 outbreak. In fact, unlike the actual economy, the local stock market has been very active in recent weeks.
Short-term speculation is gambling
It is interesting to note that while the stock market has been volatile during the pandemic, it has, nevertheless, attracted those interested in making quick money through short-term trading amid such market volatility. However, this tactic can be challenging as you need to be able to time the market accurately, much like a day trader. The act of trading may appear to be simple, but it is in fact a kind of risky speculative investment. Particularly, small cap stocks may have extreme price movements, making their short-term trading a high-risk investment.
The 99-1 Rule
Information is now readily available from everywhere we look: newspapers, television and radio programmes, online forums and social media. While knowledge is power, the world is not short of fake news, nor “professional advice” from self-proclaimed “investment experts”. That’s why we should exercise caution when dealing with information. As renowned investor Warren Buffett pointed out about the “99-1 rule” of the stock market: many investors act on just 1% of news and forget the remaining 99%.
Initial gains from short term speculations or so-called exclusive tips may blind us to the real risks. When investing becomes speculating, we are on the road with no return. Investment shortcuts, like free lunches, simply do not exist.
