The other day, my ex-classmate from Perth related to me that some of his ex-students made a bundle from the recent stock market rallies. He has never invested in stocks, let alone speculate on them. As some Chinese would insist, 'ku phiu' (Cantonese for shares) involves the so-called key word 'ku' (bastardized to mean 'guess') which was why the stock market seems like a casino to those who are addicted to some forms of gambling.
I have been through three major downturns, so I was able to relate some realities to him.
First of all, one cannot assume what one has made now will remain the trend indefinitely. When there is a bull run, there is a general rise in share prices which would increase the value of the shares held. There are many factors which can affect the future trends of the share market.
Secondly, you can only count your gains when you have sold your shares. Paper profit means nothing when the prices dropped later. Even if you have realized your gains, so long as you are still in possession of shares, a major drop in share prices could set you back not only to square one, but also to negative territory. For example, you sold some shares and made Rm10,000 and felt elated and optimistic. There are shares which are unsold but which you calculate could realize gains but which you rather save it for another day. If there were adverse factors soon after and your remaining portfolio dropped by a greater percentage than before, the book loss could be even higher than your earlier gain of Rm10,000, and in addition to that, your expected gains also vanished! This is why for those who speculate in shares, their moods swing according to the rise and fall of the stock market.
Of course, there are certain shares which would carry on the uptrend in prices because of their inherent values or whatever that attracted the demand from buyers. But once the shares are sold and gains realized, what are the chances of you finding similar profit-making shares?
We have, over the years, many types of tools which are supposedly useful for stock analyses and choice of stocks that could increase in value. Some even guarantee success. But with the benefit of hindsight, some chartists are no better than this dog...
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