On... It Depends

Recently a friend asked whether he should buy Telstra shares. My reply - "Short answer is no. Long answer is it depends".

Generally, there are 4 types of games in my opinion; with different levels of time frame and complexity. These 4 are as follows :-

Passive/index investing. These are generally for know nothing investors (although a lot of knowledgeable investors such as Morgan Housel do invests passively). If you don't know where to start or are not interested in picking individual stocks, this is the best game to play. Apparently, just doing Dollar Cost Averaging into an index would beat most active fund managers out there. 

Active investing. If you're interested in business and picking individual stocks - this is the game you play. Basically, buying a stock is a partial ownership of a business. Generally speaking, if you're investing in a business, it should be a quality business. You need to be able to value a company and buy it when the stock price is below it's value. In the long run, the market will price the business according to its value. 

Trading. Generally, if you hold a stock longer than a year, you're investing. If you hold it less than a year, you're trading. There is virtually no difference except for the time frame - both investing and trading is buying a stock at a lower price and selling it at a higher price. However in trading, the value of the business matters not at all. The only thing that matters is, people will buy your stock at a higher price than you bought it (you can even buy business that are going bankrupt and make money trading it).

Day trading. You open your positions at the start of the day and close your positions when the market closes.

So whether you should buy a certain stock or what stock you should buy depends on which game you're playing. Hence the answer to my friend - it depends.