Risk is a household name in the investing world; you hardly talk about stock market without mentioning risk. As a result people have develop erroneous conclusions about risk and risk tolerance in the investing, many a time it is discussed without defining what it really mean. It is not unusual to read a trade recommendation discussing alternatives or options based on different risk tolerances. But how does an individual investor determine his or her risk tolerance? How can understanding this concept help investors in diversifying their portfolios? This happens to be the most pressing issue which is often left out, this we will delve into in today investment education class and we also intend to correct the peoples’ misconception able the concept of risk in investing. Read on as we elucidate on risk tolerance.

An often seen cliché is that of what we’ll refer to as “age-based” risk tolerance. It is conventional wisdom that a younger investor has a long-term time horizon in terms of the need for investments and can take more risk. Following this logic, an older individual has a short investment horizon, especially once that individual is retired, and would have low risk tolerance. While this may be true in general, there are certainly a number of other considerations that come into play.
First, we need to consider investment. When will funds be needed? If the time horizon is relatively short, risk tolerance should shift to be more conservative. For long-term investments, there is room for more aggressive investing as time happens to offer more opportunity for capital appreciation even in a less responsive stock.

Be careful, however, about blindly following conventional wisdom. For example, it is often said that when you are 65 that you must shift everything to conservative investments, Warren Buffet as out grown that age and he is still investing in company that look risky, though he has his own investing principle to follow, which mean you also as to develop your own style of investment rather than follow the conventional way of investing in vehicle such as certificates of deposit or Treasury bills. This may be appropriate for some, it is not definitely a norm that all should follow – for example an individual who has enough to retire and live off of the interest of his or her investments without touching the principal. With today’s growing life expectancies and advancing medical science, the 65-year-old investor may still have a 30-year (or more) time horizon.

Risk Capital
If net worth is your assets minus your liabilities and available risk capital is capital that can easily be converted into cash or money available to invest or trade that will not affect your lifestyle if lost, then it should be important considerations when determining risk tolerance. Therefore, an investor or trader with a high net worth can assume more risk. The smaller the percentage of your overall net worth the investment or trade makes up, the more aggressive the risk tolerance can be. Because losing it at that point will not be as painful as when you lose what you have based your retirement’s survival on.
Unfortunately, those with little to no net worth or with limited risk capital are often drawn to riskier investments like futures or options because of the lure of quick, easy and large profits. The problem with this is that when you are “trading with the rent” it is difficult to have your head in the game. Also, when too much risk is assumed with too little capital, a trader can be forced out of a position too early. 
On the other hand, if an undercapitalized trader using limited or defined risk instruments (such as long options) “goes bust”, it may not take that trader long to recover. Contrast this with the high-net-worth trader who puts everything into one risky trade and loses - it will take this trader much longer to recover.

Define your Investment Objectives
Your investment objectives must also be considered when calculating how much risk can be assumed. If you are saving for a child’s college education or your retirement, how much risk do you really want to take with those funds? Conversely, more risk could be taken if you are using true risk capital or disposable income to attempt to earn extra income.

Investment Experience
When it comes to determining your risk tolerance, your level of investing experience must also be considered. It is often said that experience is the best teacher I think that concept is fully applicable in investing world. There are many assumptions one can make if he is not yet in the stock market or better put if not an educated investor. Some of these myths will be dealt with in subsequent edition.  Are you new to investing and trading? Have you been doing this for some time but are branching into a new area, like selling options? It is prudent to begin new ventures with some degree of caution, and trading or investing is no different. Get some experience under your belt before committing too much capital. Always remember the old cliché and strive for “preservation of capital.” It only makes sense to take on the appropriate risk for your situation if the worst-case scenario will leave you able to live to fight another day.

Careful Consideration of Risk Tolerance
There are many things to consider when determining the answer to a seemingly simple question, “What is my risk tolerance?” The answer will vary based on your age, experience, net worth, risk capital and the actual investment or trade being considered. Once you have thought this through, you will be able to apply this knowledge to a balanced and diversified program of investing and trading. 
Spreading your risk around, even if it is all high risk, decreases your overall exposure to any single investment or trade. With appropriate diversification, the probability of total loss is greatly reduced. This comes back to preservation of capital by applying Naira Cost Averaging investing technique.
Knowing your risk tolerance goes far beyond being able to sleep at night or stressing over your trades. It is a complex process of analyzing your personal financial situation and balancing it against your goals and objectives. Ultimately, knowing you risk tolerance - and keeping to investments that fit within it - should keep you from complete financial ruin.

Recently, I had the opportunity of contributing to a project designed to encourage young ladies in their aspiration towards greatness in life with particular attention on taking charge of their finances. It was another opportunity to tell as many that cared to listen that life is all a product of choices. You choose either to succeed or to fail. Many people will wonder how on earth anybody will make a choice of failure but the reality is that as long as you do not opt for the option of taking charge of your life, you have picked the other option of life treating you as it wills. It may seem directed to the female folks but there is something in there for every one. These were my thoughts: 

Everyone especially women by natural composition find it easy to shift blames and arrogate success. When failure comes her way, it’s either because of another person, situation or environment but when success comes, it’s because she knows how to do it. I’ve not heard of a self made failure but I’ve not stopped hearing of self made women.

People I’ve seen around just think it normal to find a defensive reason for their unsuccessful foray into any venture. It starts from school, when a student makes good grade in a subject, then she deserved it; if on the contrary, she does not live up to expectation, she was short changed by the teacher. It’s either her script was not properly marked, her test score was not recorded, Mr teacher is interested in her without enough courage to bear his mind or her face is just singled out as unpleasant amongst other students, therefore, the teacher hates her without cause. We may not rule out the fact that some fall victim but we can not agree to all claims.

If I commission you on an independent survey to find out why people are not living the life they desire to, I can be sure you’ll return with some interesting, some pardonable and some disgusting excuses. Financial inadequacy will likely be the major reason, and the government will receive the first deposit of blames. I can imagine someone will say ‘there is no equity in the distribution of wealth, that is why I prefer socialism to capitalism, the rich are only getting richer and we the poor are left at God’s mercy. We hope God will do something someday’. 

Another person will say as for me, I’m very sure my boss hates me. Every other person in our office has been considered for promotion twice since I was employed except me- could that be coincidental. Something must be happening, it’s probably that he doesn’t like my face. But if promotion is coming regularly, the song will be different.

Other responses will be like, ‘success is all a matter of luck and I hope that my luck will come one day, then, I’ll be able to live the kind of life I want’.

That is how people cripple their destinies by making excuses and pushing their roles in having a fulfilled life to another person. Often, such people get to realise the wrongs they’ve done but it comes late, sometimes at unredeemable moments.

Truth is that accepting responsibilities for every of your action is important for meaningful progress. Nobody can achieve financial independence without agreeing to her past mistakes haven been committed by her and ready to move away with renewed vigour. Many people never reach that realm but that’s no excuse for not suffering the consequences of your inaction.

Investing and planning for your future is a non transferable responsibility. Nobody is permitted to take the blame even if you decide to pour your aggression on someone else. I believe that financial leprosy is traceable to human indolence and mental slothfulness. Inability to be truthful with oneself will lead down the road of retrospective regrets. I am convinced that if a woman chooses to take her entire destiny including finances in her hands, gets sincere with herself and charts a new course of progress, no force on earth will be strong enough to stop her. We won’t be wrong to submit that a woman is the architect of her future, she becomes whatever she chooses to be. No one is born financially independent, we have seen people born with silver and golden spoons in their mouth ending in penury and we’ve seen others coming out of the poorest of poor families and finishing in financial abundance.

It will then be fitting and proper for us to say that rather than your boss, your teacher, your family background, your environment  or government, you are responsible for your life, therefore take responsibility and do it now.

Rational Approach to Investment Planning

Having considered portfolio diversification I think it’s necessary for us to consider investment planning this week. The reason for considering this is know the intrinsic factor that determine our responses to market behavior and how to put some of the debilitating habit under control having identify it effect. Stay alive as we reason together.

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

                                                                                                                          Benjamin Graham

Any expert market player will tell you, it’s vital to have a plan of attack. Formulating the plan is not particularly difficult, but sticking to it, especially when all other indicators seem to be against you, can be. In today’s class we will be considering the importance of investment planning, including what can happen without one, what to consider when formulating one as well as the investment vehicle options that best suit you and your needs.

As the “Sage of Omaha” says, if you can grit your teeth and stay the course regardless of peoples’ opinion, prevailing trends or analysts’ forecasts, and focus on the long-term goals and objectives made upon solid findings of your investment plan, you will create the best circumstances for realizing solid growth for your investments. As you can see, this principle could work better for long term investors unlike short term investor which should be more interested in trend and analysts’ forecast.

By nature, financial markets are volatile. If you had paid attention to the Nigeria capital market in the last two months you would notice that it went bearish compare to what is happening now. In the middle of such a fragile and insecure environment, it’s crucial for you to keep your emotions in check and stick to your investment plan. By doing so, you maintain a long-term focus and thus assume a more objective view of current price fluctuations. If an investor had let their emotions be their guide during the bearish season they would definitely had miss the bull thereafter.

Note the Deadly Emotional Giants
The three deadly emotional giants are: fear, hope and greed. Fear has to do with selling too low - when prices plunge; you get alarmed and sell without re-evaluating your position. In such times, it is better to review whether your original reasons (i.e. sound company fundamentals) for investing in the security have changed. The market is fickle and, based on a piece of news or a short-term focus, it can irrationally oversell a stock so its price falls well below its intrinsic value. Selling when the price is low, which causes it to be undervalued, is a bad choice in the long run because the price may recover.

The second emotion is hope, which, if it is your only motivator, can spur you to buy stock based on its price appreciation in the past. Buying on the hope that what has happened in the past will happen in the future, regardless of its fundamentals. It is important that you look less at the past return and more into the company’s fundamentals to evaluate the investment’s worth. Basing your investment decisions purely on hope may leave you with an overvalued stock, with which there is a higher chance of loss than gain.

The third emotion is greed. If you are under its influence, you may hold onto a position for too long, hoping for a few extra points. By holding out for that extra point or two, you could end up turning a large gain into a loss. During a boom investors who were already achieving double-digit gains could hold on to their positions hoping the price would creep up a few more points instead of scaling back the investment. Then when prices began to drop, many investors who didn’t shift, held out in the hopes that their stock would rally. Instead, their once large gains turned into significant losses.

When your investment plans include buying and selling criteria you will be able to manage these three deadly giants of investing.

The Key Components
Determine Your Objectives
The first step in formulating a plan is to figure out what your investment objective is. Without a goal in mind, it is hard to create an investment strategy that will get you somewhere. Investment objectives often fall into three main categories: safety, income and growth. Safety objectives focus on maintaining the current value of a portfolio. This type of strategy would best fit an investor who cannot tolerate any loss of principal and should avoid the risks inherent in stocks and some of the less secure fixed-income investments.

If the goal is to provide a steady income stream, then your objective would fall into the income category. This is often for investors who are living in retirement and relying on a stream of income. These investors have less need for capital appreciation and tend to be adverse to stock market risks.

Growth objectives focus on increasing the portfolio’s value over a long-term time horizon. This type of investment strategy is for relatively younger investors who are focused on capital appreciation. It’s important to take into account your age, your investment time frame and how far you are from your investment goal. Objectives should be realistic, taking into account your tolerance for risk.

Risk Tolerance
Most people want to grow their portfolio to increase wealth. But there remains one major consideration - risk. How much, or how little, of it can you take? If you are unable to stomach the constant volatility of the market, your objective is likely to be safety or income focused. However, if you are willing to take on volatile stocks then a growth objective may suit you. Taking on more risk means you are increasing your chances of realizing a loss on investments, as well as creating the opportunity of greater profits. However, it is important to remember that volatile investments don’t always make investors money. The risk component of a plan is very important and requires you to be completely honest with yourself about how much potential loss you are willing to take.

Asset Allocation
Once you know your objectives and risk tolerance, you can start to determine the allocation of the assets in your portfolio. Asset allocation is the dividing up of different types of assets in a portfolio to match the investor’s goals and risk tolerance. An example of an asset allocation for a growth-oriented investor could be 20% in bonds 70% in stocks and 10% in cash equivalents (certificate of deposit, bankers acceptance, treasury bill e.t.c.).

It is important that your asset allocation is an extension of your objectives and risk tolerance. Safety objectives should comprise the safest fixed-income assets available like money market securities, government bonds and high-quality corporate securities with the highest debt ratings. Income portfolios should focus on safe fixed-income securities, including bonds with lower ratings, which provide higher yields, preferred shares and high-quality dividend-paying stocks. Growth portfolios should have a large focus on common stock or mutual funds. It is important to continually review your objectives and risk tolerance and to adjust your portfolio accordingly.

The importance of asset allocation in formulating a plan is that it provides you with guidelines for diversifying your portfolio, allowing you to work towards your objectives with a level of risk that is comfortable for you.

The Choices
Once you formulate a strategy, you need to decide on what types of investments to buy as well as what proportion of each to include in your portfolio. For example if you are growth oriented, you might pick stocks or mutual funds that have the potential to outperform the market. If your goal is wealth protection or income generation, you might buy government bonds.

If you want to choose your own stocks it is vital to institute trading rules for both entering and exiting positions. These rules will depend on your plan objectives and investment strategy. One stock trading rule - regardless of your approach - is to use stop-loss orders as protection from downward price movements. While the exact price at which you set your order is your own choice, the general rule of thumb is 10% below the purchase price for long-term investments and 3-5% for shorter-term plays. Here’s a reason to use stops to cut your losses: if your investment plummets 50%, it needs to increase 100% to break even again.

You may also consider professionally managed products like mutual funds, which give you access to the expertise of professional money managers. If your aim is to increase the value of a portfolio through mutual funds, look for growth funds that focus on capital appreciation. If you’re income-orientated, you’ll want to choose funds with dividend-paying stocks or bond funds that provide regular income. Again, it is important to ensure that the allocation and risk structure of the fund is aligned with your desired asset mix and risk tolerance.

Conclusion
An investment plan is one of the most vital parts for reaching your goals - it acts as a guide and offers a degree of protection. Whether you want to be a player in the market or build a nest egg, it’s crucial to build a plan and adhere to it. By sticking to those defined rules, you’ll be more likely to avoid emotional decisions that can derail your portfolio, and keep a calm, cool and objective view even in the most trying of times.

However, if all of the above seems like too tall an order, you might want to engage the services of an investment advisor, who will help you create and stick to a plan that will meet your investment objectives and risk tolerance.

We meet again next week.

It’s good to clarify how securities are different from each other, but it’s even more important to understand how their different characteristics can work together to accomplish an objective.

The Portfolio
A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving an investor’s goal(s). Items that are considered a part of your portfolio can include any asset you own - from real items such as art and real estate, to equities, fixed-income securities and their cash and equivalents. For the purpose of this section, we will focus on the most liquid asset types: equities, fixed-income securities and cash and equivalents.

An easy way to think of a portfolio is to imagine a pie chart, whose portions each represent a type of vehicle to which you have allocated a certain portion of your whole investment. The asset mix you choose according to your aims and strategy will determine the risk and expected return of your portfolio.

Why Portfolios?
It all centers on diversification. Different securities perform differently at any point in time, so with a mix of asset types, your entire portfolio does not suffer the impact of a decline of any one security. When your stocks go down, you may still have the stability of the bonds in your portfolio.

There have been all sorts of academic studies and formulas that demonstrate why diversification is important, but it’s really just the simple practice of “not putting all your eggs in one basket.” If you spread your investments across various types of assets and markets, you’ll reduce the risk of catastrophic financial losses.

Basic Types of Portfolios
In general, Aggressive Investment Strategies those that shoot for the highest possible return - are most appropriate for investors who, for the sake of this potential high return, have a high risk tolerance (can stomach wide fluctuations in value) and a longer time horizon. Aggressive portfolios generally have a higher investment in equities.

The Conservative Investment Strategies, which put safety at a high priority, are most appropriate for investors who are risk averse and have a shorter time horizon. Conservative portfolios will generally consist mainly of cash and cash equivalents, or high-quality fixed-income instruments.

To demonstrate the types of allocations that are suitable for these strategies, we’ll look at samples of both a conservative and a moderately aggressive portfolio.

Note that the terms cash and the money market refer to any short-term, fixed-income investment. Money in a savings account and a Certificate of Deposit (CD), which pays a bit higher interest, are examples.

The main goal of a conservative portfolio strategy is to maintain the real value of the portfolio, or to protect the value of the portfolio against inflation. The portfolio you see here would yield a high amount of current income from the bonds and would also yield long-term capital growth potential from the investment in high quality equities.

A moderately aggressive portfolio is meant for individuals with a longer time horizon and an average risk tolerance. Investors who find these types of portfolios attractive are seeking to balance the amount of risk and return contained within the fund.

The portfolio would consist of approximately 50-55% equities, 35-40% bonds, 5-10% cash and equivalents.

You can further break down the above asset classes into subclasses, which also have different risks and potential returns. For example, an investor might divide the equity portion between large companies, small companies and international firms. The bond portion might be allocated between those that are short-term and long-term, government versus corporate debt, and so forth. More advanced investors might also have some of the alternative assets such as options and futures in the mix. As you can see, the number of possible asset allocations is practically unlimited.

Geo-Fluids Limited private placement is available for sale.

Ordinary shares of 50 kobo each at N5.40k per share

Placement Opens; may 21, 2008

Placement Closes: June 20, 2008

Contact us for purchase at our office

6, Lateef Bashorun Magodo GRA

Ketu-Lagos

or call

08035359159,017405824

Today we will be considering the major secret of investment principle- compounding. Albert Einstein called compound interest “the greatest mathematical discovery of all time”. I think this is true because, unlike other mathematical discoveries, compounding can be applied to everyday life.

The wonder of compounding transforms your working money into a up to date, highly powerful income-generating tool. Compounding is the process of generating earnings on an asset’s reinvested earnings. To work, it requires two things: the re-investment of earnings and time. The more time you give your investments, the more you are able to accelerate the income potential of your original investment, which takes the pressure off of you.

To demonstrate, let’s look at an example:

If you invest N1,000 today at 15%, you will have N1,150 in one year (1000+1000*15/100). Now let’s say that rather than withdraw the N150 gained from interest, you keep it in there for another year. If you continue to earn the same rate of 15%, your investment will grow to N1,322.50k (1150+1150*15/100=1150*1.15) by the end of the second year.

Because you reinvested that N150, it works together with the original investment, earning you N172.50k, which is N22.50k more than the previous year. This little bit extra may seem like peanuts now, but let’s not forget that you didn’t have to lift a finger to earn that N22.5k. More importantly, this N22.50k also has the capacity to earn interest. After the next year, your investment will be worth N1520.88k (N1322.50k x 1.15). This time you earned N198.38k, which is N48.38k more interest than the first year. This increase in the amount made each year is compounding in action: interest earning interest on interest and so on. This will continue as long as you keep reinvesting and earning interest.
From the above illustration you could see how the invested capital appreciates in value as time pass by. You see how accumulated interest accruing more interest to itself.

When you invest, always keep in mind that compounding amplifies the growth of your working money. Just like investing maximizes your earning potential, compounding maximizes the earning potential of your investments - but remember, because time and reinvesting make compounding work, you must keep your hands off the principal and earned interest.

The fact that share value traded in the previous week is higher despite that the unit of shares traded is low compared to this week result from the differences in the share value/unit of stocks traded.

 Price movementThe All-Share Index dropped by 2.11% to closing at 59,124.87 on Friday.Ten-Top Gainers of the week

  Ten-Top Losers of the week

 Technical Suspension

This was imposed on Nigerian Wire Industries Plc on Monday April 28, 2008 when they tender an application to undertake supplementary share offering.

Now to the topic of today- how to buy shares from the secondary market. We have already pointed out the differences between the primary and secondary market. At a time, we looked into the simplicity of walking into banks and other financial institutions to pick abridged prospectuses and buy into stocks of companies which is the primary market. Then we went ahead to say that the secondary market is the act of purchasing shares on the trading floor of the Nigerian Stock Exchange. Today we’ll look at the steps and procedures involved in buying shares from the secondary market.

The first step to take in starting out to the market is identifying and having a stockbroker. Last week, we examined the roles of the stockbroker in the market, so the person of the stockbroker in no longer vague or strange to you. He is a gatekeeper to your wealth in the market place.

The stockbroker will then help you to open a shareholder’s account or what is generally called the CSCS account after filling the appropriate form. By the way CSCS mean Central Security Clearing System. That is the electronic system in which stocks are kept to avoid any case of eventuality. You need to know that there is no way you can buy shares without a CSCS account and if you have bought all your shares through the primary market, you can not sell without a CSCS account. With your CSCS account, you need not carry around the several certificates of various companies, just give every certificate in your hand to your stockbroker and he will do well to lodge everything into a single CSCS account. You can then collect your account statement at intervals. Even if you lose that, it is very easy to collect again, only walk up to the broker and he’ll print another copy for you.

So after opening the CSCS account, you are set to buy shares from the secondary market. I don’t think it should take more than three days to open an account.

To buy shares, you take your money or cheque to the stockbroker for which you collect a receipt. I guess you should know by now that there is need for you to obtain an evidence of payment for every amount you pay for whatever purpose. The receipt indicates the amount you have paid for the purchase of shares. The broker then goes ahead to buy your shares on your order. It’s a case of ‘he who pays the piper dictates the tune’. The broker is there to advice you but the ultimate decision of what you want to buy is yours.

After the purchase of the shares, the broker will give you a contract note which is an evidence of a deal on your behalf. In the contract note is where you’ll see the number of units of shares that has been purchased for you and the amount for which the purchase was made. That is the first document from the stock broking firm reflecting that you are a shareholder in a particular company. The next document you receive from your broker is what is called CSCS statement. The CSCS is prepared monthly, so you might not get your CSCS statement till the following month after purchase.

With that you are a bonafide member of the company of which you bought its shares and every entitlement of a shareholder accrues to you. In the case of selling those shares you acquired, you only need to inform the broker and he will give you the appropriate forms to fill before disposing it. I think that little explanation has made trading in stocks in the secondary market easy.

We’ll meet next class to understand more of the capital market until equity investment is totally demystified. Have a good time and God bless you.

Have you ever wondered how the rich got their wealth and then kept it growing? Do you dream of retiring early (or of being able to retire at all)? Do you know that you should invest, but don’t know where to start?
If you answered “yes” to any of the above questions, you’ve come to the right place. Just as we have shown the necessity for investing in two recent posts we shall elucidate on the nitty-gritty of investing in today’s post.
The world of finance can be extremely intimidating, but we firmly believe that the stock market and greater financial world won’t seem so complicated once you learn some of the language and major concepts.

We should emphasize, however, that investing isn’t a get-rich-quick scheme. Taking control of your personal finances will take work, and, yes, there will be a learning curve. But the rewards will far outweigh the required effort. Contrary to popular belief, you don’t have to allow banks, bosses or investment professionals to push your money in directions that you don’t understand. After all, no one is in a better position than you are to know what is best for you and your money.
Regardless of your personality type, lifestyle or interests, our daily post at www.themoneyoracle.com will help you to understand what investing is, what it means and how time and compounding help multiply your money.

One last thing: remember: there are no “stupid” questions. If after reading this tutorial you still have unanswered questions, we’d love you send your question through the page below.

What Is Investing?

The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.

It’s actually pretty simple: investing means putting your money to work for you. Essentially, it’s a different way to think about how to make money. Growing up, most of us were taught that you can earn an income only by getting a job and working. And that’s exactly what most of us do. There’s one big problem with this: if you want more money, you have to work more hours. However, there is a limit to how many hours a day we can work, not to mention the fact that having a bunch of money is no fun if we don’t have the leisure time to enjoy it

You can’t create a duplicate of yourself to increase your working time, so instead, you need to send an extension of yourself - your money - to work. That way, while you are putting in hours for your employer, or even mowing your lawn, sleeping, reading the paper or socializing with friends, you can also be earning money elsewhere. Quite simply, making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime or look for a higher-paying job.

 There are many different ways you can go about making an investment. This includes putting money into stocks, bonds, mutual funds, or real estate (among many other things), or starting your own business. Sometimes people refer to these options as “investment vehicles,” which is just another way of saying “a way to invest”. Though each of the investment vehicles have there own benefit and drawback which we will get to know as time goes on. The point is that it doesn’t matter which method you choose for investing your money, the goal is always to put your money to work so it earns you an additional profit. Even though this is a simple idea, it’s the most important concept for you to understand.

Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a “hot tip” you heard at the water cooler is essentially the same as placing a bet at a nightclub.

True investing doesn’t happen without some action on your part. A “real” investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still is risk and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.

We shall continue from here tomorrow.