Fifteen favourite fallacies

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1. "Investing is just gambling anyway, so why not take a few chances?"

True, there are clear parallels between gambling and investment. For example, both call for you to calculate the odds on a given 'bet'. But it is foolish to regard them as one and the same activity.

Arithmetically, if you stay at the table long enough in a casino, you are guaranteed to lose money in every game bar blackjack. The odds are against you. But if in past years you had stayed invested long enough in the stock market, you would have taken away profits of around 6-10% per year in the long run (of course, this cannot be guaranteed in future).

However, you can treat the market like a casino if you want to. You can ignore the fact that behaving in a safer, but duller, way will make you reliable long-term returns. Instead, you can try to get rich quick, with all the thrills and spills that go with any kind of gambling.

But you must clearly understand that this is sheer speculation, not investing. It is no more likely to make you money than betting on horses. That is because your true motive is not profit. You are speculating for the fun and excitement of it.
Typical signs of this are:

• You frequently act on tips without doing any research
• You think in terms of individual 'bets' rather than a whole portfolio
• You like to make big bets, and boast about them
• You feel excited when your stocks go up and depressed when they go down
• After a particularly good day, you dream about giving up the day job
• You feel a strong urge to deal frequently, especially when the market is up
• You talk about your good or bad luck rather than your judgement

If you recognise a lot of these traits in yourself, let the professionals manage your money for you.

1. "Investing is just gambling anyway, so why not take a few chances?" 2. "You've got to speculate to accumulate" 3. "Growth always wins in the end/Value always wins in the end" 4. "Blue chips are best/Smaller companies are best" 5. "Penny shares are the best value for money" 6. "It's such a great company, I can't go wrong" 7. "But just look at the dividends" 8. "I've got to be in technology/biotechnology/telecoms etc" 9. "I missed that one, I'll catch the next one" 10. "Paper losses aren't real" 11. "I'll never go broke taking a profit" 12. "It can't possibly go any lower" 13. "It can't possibly go any higher" 14. I can't sell because of the tax bill 15. "This time it's different" 16. Conclusion

• One Up on Wall Street