Trading For The Non-Gamber

By Jeri Anne Rodgers 

The pro investors are quick to point out that properly researched investments aren't a gamble, when properly calculated and researched, they don't leave much room for risk.

The market is often compared to a casino, and it's wrong to throw the two into the same category. Put some money on a random stock with no research, and you might as well be playing craps! Don't fall prey to the close your eyes and point method.

If you absolutely must compare gambling to stock market investing, just remember, that unlke the casino, the odds are actually stacked in your favor if you know what you are doing.

Why is that?

Corporate profits are the key to understanding the investor's edge. By buying a share of stock gives its holder an ownership claim on that company's earnings. If those earnings go up, then the stock price almost always rise accordingly. Makes sense, doesn't it? When you own a company, it's always worth more when the price goes up than when it goes down!

An investment in the market comes down to this, it's a vote of confidence that the price of that stock will rise! Not a guarantee by any means, but one where you hold house odds.

Still not convinced?

Maybe you're saying to yourself that just because corporate earnings rise in most years doesn't mean there aren't years in which they fall. This is absolutely true, and at least from a buy and hold approach it's refutable. Historically, over the last 200 years, the market has risen more than it has fallen on a year-by-year basis. And that's because the economies in the developed countries have expanded at a fairly steady pace with only several occasional setbacks from recessions.

More often than not, this means that our market is on the rise, and with the right research it's open for the taking. Make your money!

On the other hand, investing increases overall wealth because the capital invested in stocks provides the initial funding for firms, which exist for the purpose to producing goods and services.