Winning the game at the expense of others

In investment, if we pick the right, well managed companies, we can take a ride for long period with the company although our picking point was not at the right optimal level. Usually, if anyone is buying a business, we do not expect (but yes we hope we do), we are going to have an immediate gain, and a month later we sell that business. That in a way is speculation. In speculation, it is often a zero sum game where we hope that we have gone in at the optimal price point, while others would pick our crumbs along the way when we sell.

A zero sum game is when we win, another person will lose. Almost all the people that invests hope that it is a positive sum game. That is if I win, our fellow investors will win as well. The business turns out to be getting stronger and stronger and eventually dish out strong consistent dividends. That has always been the hope of a long term investor. However, if one is to decide to pour part of their savings into Magnum, Berjaya Toto (not the stocks but the tickets) then it would be really a negative sum game.

Over the last 2 years in Malaysia, I noticed an alarming state. There are just too many whom have introduced stocks at a seemingly low price, picked them up and call for a short term gain (by asking other people to buy). There will be a group of people whom will just follow. This is what I called - a hit and run and where they will never come back anymore. The ones that picked up the crumbs will often lose to the ones that call for the stocks in the first place.

In theory buying underpriced stocks is definitely not a wrong doing but the way it is done is really not right. Calling it, when other people were still buying for that person to sell is really irresponsible but unfortunately it is vastly happening.

So how do we avoid that from happening. We can't. In most likelihood, it is the role of the other investors themselves to weed those irresponsible(s) out. The best way is to really test out their facts and understanding of the matter. As an example, if one is to say the below for example, you know there is really something wrong in the person who says it:

"Actually, many people do not understand what is Share Premium Account and it's intended use. And because of this, many retailer miss out on potential corporate exercise that can benefit them.

So, how does this share premium account appear? Let me give you an example. Let's say the company Par Value is RM 0.50, but the company do a private placement at RM 1.00, so there is a Premium of RM 0.50. That RM 0.50 will then be stored inside the share premium account, and it cannot be simply used for normal operation such as company operation. The money here can only be utilized for corporate exercise such as Bonus Issue. When the company do bonus issue, it will then capitalized the money in the share premium account into share capital, and can utilize them for company day to day operation."

I am perplexed when someone can get away with totally wrong facts, and there will just be people who follow.

In today's world there are so many reliable sites where we can check the facts - and for those who really want to get tips, please really check and recheck them. Your money is your responsibility!