Investing ... or speculating? (continued)

I was that blunt and the friend pondered about what I said. The friend agreed that that was true.

So that was my cue to say that there were more to investment decision making than just listening to what your other friends are doing. I also told the friend that before deciding on what kind of investment to take, an emergency fund should be put up first.

People are far more interested to get into the action rather than planning ahead. What does this mean? People want to see their money grow right away without considering if they have money set aside for a stormy day. Humans are generally a greedy bunch.

Instead of asking, where can I invest? You should first ask, where can I invest without risking my near term prospects? I.e., if you have paper loss sometime down the road, do you have money to keep you going (and living) if you should lose your job or lose a business?

To know if you are just speculating or actually investing with your investible funds, here are some possible "indicators". -

1. You focus on the short term, rather than the long term

2. Fear drives your decision to sell...

3. ...and Greed drives your decision to buy a new investment

4. Your decision is anchored on hope and slight delusion (a stock has fallen by 15% and you still think that those behind the stock will support it and it'll eventually recover more than 15% sometime soon)

5. Where there's smoke, there's fire, and more often than not, you get burned

6. You are fidgety, checking your investments more often than you have to

7. You boast when you have paper gains, and then gloat when you realize them...

8. ... and you don't tell anybody when you take a loss or have a paper loss...

9. ... or if you did tell someone, you just go back to telling your "war stories" of "I earned so and so in the past"

Speculation is gambling. You might have better chances at the casino than in the investment world.

Investing is based on logical decisions. You don't have to be a fundie or a technician to become an excellent investor. If you know how to save money, then you're already on your way to becoming one.