RULE 50: Only Buy Shares (Or Anything) You Can Understand

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Dr. Seye Kehinde, accomplished Publisher with Son, Seye Jnr.


Another rule to engrave on your heart; buying share-or anything else to sell on in order to make money-is just another form of gambling. When I worked as a casino manager, it was well recognized that there was a hierarchy of casinos. At the bottom were the ones with the slot machines and noisy brash atmosphere.



At the top were the gentlemen’s clubs where it was all smoked glass and diffused lighting. Gamblers of course recognize the hierarchy and felt that the latter were somehow ‘cleaner’. Similarly most people view the stock market as in some way more refined, sophisticated-and thus free of risk or odds or danger. But it is all gambling. Nothing is certain.

“I have a friend who only invests in green companies. He swims around with an air of moral superiority; he believes he has bought a ticket to heaven by doing this. He is a gambler. He doesn’t realize this. Is he buying with his head as well as with his heart?”

If you are going to gamble on shares (or anything else you want to buy and sell), then reduce the odds as much as possible and only invest in or buy things you know and understand. By doing this, you eliminate a lot of the mystique which can lead you to stake more than you intend, take risks you wouldn’t normally, or be bamboozled by slick marketing fufu.
If you shop at Mark & Spencer, and you see that the new product ranges are good and that the stores are full and you hear people raving about how M&S has improved this year, then buy Marks & Spencer shares. If you keep studying the store and listening to people shopping you will quickly notice if it continues to be a good investment.
Just be careful you are aware if you are buying with your head or heart. I have a friend who only invests in green companies. He swims around with an air of moral superiority; he believes he has bought a ticket to heaven by doing this. He is a gambler. He doesn’t realize this. Is he buying with his head as well as with his heart? If you find investments in something you love, be clear if you are buying as an investment on business principles, or simply because you want to. If your rational market analysis says that wind farms are the future, and will be a growing industry with big returns, then fantastic, you can invest with head and heart.
If you don’t really understand a particular sector of business, and you don’t intend to put the work in to get to know it well, then you will almost certainly be better off investing in something else. If you want to invest shares, but don’t want to do all the home work and make all the decisions yourself, then you can use an investment fund. And that brings us conveniently to our next Rule.

From The Book; The Rules of Wealth by Richard Templar
(Read Rule 51 of Rule of Wealth on Monday at Asabeafrika)


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