elaborates Abdul Rashid Najar
First of all it is to understand what is “share”? A share is a portion of the total ownership of a company. The more shares you own in a company, the more ownership you have in that company. Simply it is proprietorship. A market or a place where buying and selling of stocks takes place like in BSE, NSE (India), NYSE (USA), etc, etc. A stock market may be a physical place, sometimes known as a stock exchange, where brokers gather to buy and sell stocks and other securities. The term is also used more broadly to include electronic trading that takes place over computer and telephone lines where stocks (shares) are bought and sold.
Now the question arises, is it gambling to enter in trading-of-stocks? And this reasoning causes many people to shy away from the stock market. To understand why investing in stocks is intrinsically different from gambling; we need to analyze what it means to buy stocks. A share of any stock is ownership in a company. It gives the right to the holder to claim on assets as well as profits that the company may generates. But often, investors think that shares as simply meant for trading purposes and they forget their proprietorship rights in the company. As shares are freely tradable and that is why stock prices fluctuate and many a times tend to move to the unexpected directions and therefore these moments though are of short-term in nature do not mean that the company has direct relations with these moments. There are so many variables involved that the short-term price movements appear to be random; however, over the long term, a company is only worth the present value of the profits it will make. In the short term a company can survive without profits because of the expectations of future earnings, no company can fool investors forever - eventually a company's stock price can be expected to show the true value of the company. Contrary to this Gambling is a zero-sum game. It merely takes away money from a loser and gives it to a winner. No value is ever created in gambling. By investing, the wealth of the company is increasing vis-à-vis economy. Therefore, we need not to confuse in investing and creating wealth with gambling's zero-sum game.
The history of the stock market is filled with market volatility reflecting economic and political uncertainties. Research has so far proved un-predictable, even the advent of the internet has made the market much more open to the public than ever before and all the data and research tools previously available only to brokerages are now available to individuals to use. It is true that in stock market 90% people are losers, 5% makes break-even and remaining 5% are gainers, which mainly constitute rich people and brokers, therefore, it is not bad to say that stock market is an exclusive club in which only brokers and rich people make money. People loose money in stock markets in a big way because they are not investing in opportunities instead investing in the rising market and fall pray to declining market. This declining market made them fear and they sold their positions normally at the bottoms. In short, this is situation when stocks take a random and unpredictable path. Critics however, contend that stocks do maintain price trends over time - in other words, it is possible to outperform the market by carefully selecting entry and exit points for equity investments. The smart investor will ignore short-term volatility and will focus instead on investing in businesses that will be worth more in the future than they are today. The famous investor Benjamin Graham illustrated the behavior of the market as: "In the short run the market is a voting machine and in long run the market is a weighing machine". Another remarkable investor, Peter Lynch, once said: "Nobody can predict interest rates, the future direction on the economy or the stock market. Dismiss all such forecasts and concentrate on what is actually happening to the companies in which you've invested". So to answer the first question of whether now is a good time to invest, I would summarize with another quote, this time from the value investor Shelby Cullom Davis: "The right time to invest is when you have the money".
I would like to conclude this as, once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs10. The villagers seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at Rs10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at Rs20. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it! The man now announced that he would buy monkeys at Rs50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs35 and when the man returns from the city, you can sell it to him for Rs50. The villagers squeezed up with all their savings and bought all the monkeys. Then they never saw neither the man nor his assistant, only monkeys everywhere!!! All this happened in another village also.... But the difference was that here instead of monkeys there were goats.... So though the villagers got stuck up with goats, they milked up the goats throughout their lifetime and when they stopped giving milk, chopped them or sold them for being chopped.....
Moral: Buy goats (strong companies) even though they are overpriced, but stay away from monkeys (weak companies).
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