50 Securities Investment Taboos

Author: Xing Enquan / Country:
Publisher:
Publish Date: 2006-07-01
Features: Taboo 1 - Heavy on Practice, Ignorant of Theory
"Only focusing on practice and ignoring theory" is a major taboo in securities investment, a phenomenon that most investors tend to fall into during the process of securities investment. Frankly speaking, whether objectively or subjectively, "only focusing on practice and ignoring theory" reflects the current state of securities investment activities in China. The concept "only focusing on practice" specifically refers to investors in securities investment who only value practical experience and make investment decisions based on it in this section. The practical experience discussed in this section mainly comes from two aspects: on the one hand, it is the direct accumulation of investors themselves; on the other hand, it is the indirect acquisition of investors. "Ignoring theory" specifically refers to investors in securities investment who do not pay attention to or are completely unfamiliar with theoretical knowledge, leading to relatively superficial investment decision-making. The theoretical knowledge discussed in this section mainly refers to some classic theories in securities investment. The relationship between "only focusing on practice" and "ignoring theory" is one of cause and effect. On the one hand, "only focusing on practice" is a psychological reason, while "ignoring theory" is a behavioral result, because investors have a mindset that practice is the most important, so they form investment operations that neglect theory. On the other hand, "ignoring theory" is the intrinsic root, while "only focusing on practice" is the surface phenomenon. Investors make investment decisions that "only focus on practice" mainly because they ignore theory.
Examples In fact, in real securities investment activities, there are countless examples that illustrate the phenomenon of "only focusing on practice and ignoring theory," and they vary in form. Due to space limitations, only one typical example is listed below to illustrate this phenomenon. Mr. A is an ordinary retired worker. During his more than 30 years of work, Mr. A's salary income has always been in the middle to upper level corresponding to each period. He has always adhered to the fine tradition of diligence and frugality, so after retirement, Mr. A naturally accumulated a substantial amount of original capital. When he first retired, Mr. A began to think about how to make his original capital grow rapidly while maintaining stability and preservation. Now that he has retired, his income from all aspects has greatly declined, but he can see that he and his wife are gradually aging, and there are still many places to spend money in the future! If he wants to maintain his current standard of living, he must think of some ways to increase income so as not to spend his savings. Therefore, Mr. A began to take practical actions in advance. After a comprehensive study and comparison, Mr. A finally believed that securities investment was more suitable for his current situation and had relatively stronger operability. There are many ways to engage in securities investment, such as stocks, bonds, etc.; and their corresponding actual operations are simple and easy to learn, and you can get started quickly; in addition, the returns are high; most importantly, the operation of securities investment does not require too deep or difficult professional knowledge, as long as you can read some indicator data, graphics, charts, etc. Mr. A had this idea mainly because of the influence of his relatives and friends. "Old A, I think you should trade stocks. Not only are they easy to appreciate, but they also have high returns and are simple to learn. Follow me, I'll teach you, I guarantee you'll be proficient in a month." Mr. B is an old colleague of Mr. A and is deeply trusted by Mr. A, who proposed his own insights to Mr. A. "But I have never learned or been exposed to any knowledge of stock investment. Can this work?" Mr. A has a clear self-awareness and hesitates. "What's the big deal, it doesn't matter. Stock trading mainly relies on intuition and experience. You just need to learn some simple terms and charts a little. You can learn to trade stocks like me." "Old B is right. How do I know I can't do it without trying? Aren't the people around me also novices when they first start trading stocks? Aren't they also making money from trading stocks now? As the saying goes, 'The best way to learn to swim is to swim in the water.'" Under the guidance and persuasion of Mr. B, coupled with the practical role model of his relatives and friends, Mr. A finally decided to choose stock investment to fulfill his urgent desire to quickly increase his capital. Mr. A's final result is obvious. Although he quickly mastered some basic knowledge of stock investment operations in a short time, and after a long period of personal experience and practical insights gained from his relatives and friends, Mr. A can be said to be experienced, but because he lacks sufficient professional theoretical knowledge as the foundation for practical operations, a single naive operational mistake caused huge economic losses to Mr. A.
Analysis From the above example, we have a certain understanding of the phenomenon of "only focusing on practice and ignoring theory." A large number of facts show that there are many investors like Mr. A and Mr. B in real securities investment activities. These investors are generally divided into two types: one type is completely ignorant of the theoretical knowledge of securities investment; the other type lacks a correct understanding of theoretical knowledge from a psychological perspective. Although the causes of these two types are different, they both lead to the actual consequence of "only focusing on practice and ignoring theory." We believe that regardless of the cause, investors should try their best to avoid the occurrence of the phenomenon of "only focusing on practice and ignoring theory," thereby avoiding various losses caused by it. So, what kind of losses can the phenomenon of "only focusing on practice and ignoring theory" cause to investors? We believe it mainly includes the following three aspects: (1) It leads investors to have a one-sided misunderstanding of securities investment activities, forming the concept that only experience is useful for securities investment. Due to investors' neglect or lack of theoretical knowledge, they rely solely on practical experience to make decision-making and carry out securities investment operations. In fact, securities investment requires very high operational skills and professional quality. Therefore, theoretical knowledge and practical experience are two necessary elements for securities investment, and neither can be lacking. Imagine, if a person only has one leg, can they still walk steadily and quickly? (2) It leads investors to make "meaningless" securities investment mistakes, thereby causing economic losses that could have been avoided. Practical experience in securities investment is the material basis for the production of theoretical knowledge, while theoretical knowledge is the higher-level sublimation of practical experience. The development of any thing must follow the objective law of "practice-theory-again practice," and securities investment activities are no exception. Therefore, if investors rely solely on past practical experience to guide current securities investment operations, they are often trapped in the misconception of empiricism. Once objective conditions change, past practical experience loses its effectiveness, investors will inevitably suffer certain economic losses. Unfortunately, these losses can be completely avoided by learning relevant theoretical knowledge. P2-4