Saturday 22 October 2011

Are young people investing or gambling?

A colleague of mine commented that there are in fact 3 casinos in Singapore. That is namely Marina Bay Sands, Resorts World Sentosa and the Singapore Stock Exchange. Due to the $100 levy imposed on Singaporeans for casino entry,  it may be cheaper to invest in the stock market than to enter the casino if one is looking for a windfall.

In the course of my work,  I have met many prospects in their 20s and 30s.Many of them hold full time jobs and trade on a part time basis.  I have found many of them to be intelligent, diligent and composed individuals who want to achieve financial success quickly in their lives and have been trading stocks actively. 

Temptations are always strong for quick money

Being a young investor myself, I found it common for young or first time investors to experience the following symptoms.

  •          Increasing preoccupation with investing
  •          A need to invest more monies, and more frequently
  •          Chasing losses
  •          A loss of control
  •          Looking for a “high” that comes from investing
  •       Lying how investment performance (exaggerating profits while downplaying losses)

By replacing the words investing with gambling, and you have the standard profile of a pathological gambler.  The above warning signs are adapted from national council of problem gambling (See here)

My take is that investing is often over glamorized. The idea of using monies to grow monies exponentially do sound very sexy.  We have all heard stories about how successful people make money for them than the other way around. I feel emulating one after Warren Buffet is a good dream to have, however like gambling, my observation is that 95% of people who trade stocks actively usually do end up losing due to the transactional costs involved as well as various emotional plays that potentially result in one losing monies much faster than expected. Investing is like stepping on the accelerator of a car; one can reach their destination faster, or end up in a terrible accident. 

Bottom line:

If you win, you are investing... if you lose, you are gambling -
Many young people think they understand the difference between investing & gambling when they really don’t.  It is also important to know what financial advice is and what propaganda is.  E.g. there are many stock brokers or remeisers out there who often package advertising messages as advice to prompt their clients to action, pocketing hefty trading commissions in the process.  It doesn’t take a genius to do some charting and taking a view on stock positions. Good luck and have fun trading - )

“Risk comes from not knowing what you're doing.”  – Warren Buffett

See my other articles :   The psychology of gambling and its impact on insurance planning

                                     :    Why young people should NEVER invest their CPF savings