Investors told forget savings accounts, think of shares

[Iron]

http://www.telegraph.co.uk/finance/pers ... hares.html

This is dangerous advice IMHO.

Unless you know what you're doing, investing in shares is gambling.

And if too many people plough their money into shares, it could create a dangerous bubble.

Jeff

[Euler]

Buying overvalued shares is a gamble but putting in steady amounts and taking advantage of dollar cost averaging isn't.

Buying shares is investing, trading them gambling IMHO.

[Iron]

As with trading on Betfair, it depends if you know what you're doing.

The fact that mechanical trend following traders have averaged about 18% a year for decades and decades shows that it is possible to trade equities profitably.

I've recently bought this book, which is about an interesting experiment where people without a background in trading were transformed into extremely successful technical traders: http://www.amazon.co.uk/Complete-Turtle ... 0061241717

Jeff

Buying shares is investing, trading them gambling IMHO.

[Euler]

When buying shares you are investing though, money accrues to shareholders. You and I can sell each other shares in that company and speculate about the price till the cows come home, but it doesn't add any money to the table at all. We simply have to out do each others buying and selling decisions.

A simple fact is in aggregate no group of traders can earn more than the company does, that's impossible and it is reliant on underlying earnings.

[Iron]

They can't make more money from dividends than than the company makes in profits.

However, if a hedge fund shorts a million shares of a loss making company at £100 a share, and closes when the shares hit £80 a share, they've made more money than the company they're trading!

BTW, speaking of large trades, did you know that Mike Ashley once blew £300 million on a single bet (http://www.mirror.co.uk/news/latest/200 ... -20745653/)? It seems his poor judgment isn't restricted to matters football...

Jeff

A simple fact is in aggregate no group of traders can earn more than the company does, that's impossible and it is reliant on underlying earnings.

[Euler]

They can't make more money from dividends than than the company makes in profits.

Yes they can, have a think about it.

However, if a hedge fund shorts a million shares of a loss making company at £100 a share, and closes when the shares hit £80 a share, they've made more money than the company they're trading!

Where did the profit come from?

[Iron]

They can't make more money from dividends than than the company makes in profits.

Yes they can, have a think about it.

On reflection, you're right.

But long-term, surely dividends shouldn't exceed profits, as all the company would be doing effectively is giving the shareholders back something they already own!

However, if a hedge fund shorts a million shares of a loss making company at £100 a share, and closes when the shares hit £80 a share, they've made more money than the company they're trading!

Where did the profit come from?

From the market.

Jeff

[Euler]

If I started a company with £1000 and invested in a widget maker and that widget maker made £5000 in turnover and £2000 in profit after the first year I am up in cash terms but also my stake in the company has grown. Using the profits the company buys another two widget machines and makes £15000 in turnover and £6000 in profit in the next year.

I decided to cash out my investment. 'The market' values my investment at ten times earnings or £60,000. I have earned 60 times my original investment. Rather exaggerated but that's investment.

I need some speculators out there to sell to, they qouted me the 10 times investment. I pass them my investment and they try and turn a small profit on it and sell to other speculators.

This company paid no dividends. Dividends are nice but not essential.

[Iron]

Fair enough - I was thinking in terms of a stock market model (where I think you'll agree that dividends are essential!).

Jeff

This company paid no dividends. Dividends are nice but not essential.