Simple Rules For Losing Money In The Stock Market
Oct 10, 2009 wealth building
Follow the Hot Stocks
Robert Cialdini tells us all about the human condition known as the “social spoof” in his book Influence: The Psychology of Persuasion. Human have evolved far enough that we should know better than to run with the herd or blindly follow like little lemmings, but the instinct is to find safety in the numbers.
There are those that might think that we’ve outgrown such an instinct, that we are far removed from having the mentality of sheep, that such things are merely the stuff of fairy tales; but it is something that humans have been doing for a very long time, case in point the dot com boom. There were millions that were fearful of standing out and being different; the result was a fired up mania fueled by their fears. There are many facets of life where conformity is the key to success, but following the stock market is not one of them. Warren Buffet put it well when he said that if you want cheery consensus in the stock market you’ll pay a high price for it.
Beat yourself up over lost opportunities
Investing is an imperfect activity and there are bound to be mistakes. If you can see no mistakes then you’re probably doing it wrong. Sometimes when you are right you are absolutely wrong. The stock market is a contradiction sometimes.
In mid 1999 the tech stocks were overvalued, that’s absolutely correct to say. For the six month period thereafter the speculators played a huge role in sky-rocketing the prices and that sure did not feel correct. This is a fact of life; someone will always be getting rich just a bit faster than you. But, look at it this way; they can quite possibly become poor just as fast if they adopt the same approach.
If you have taken the conservative approach by not investing and then you see that the stock has gone up anyway, there’s no use crying over milk you never bought. There are numerous opportunities just waiting for you in the market, why waste your time an effort worrying about the ‘could have been’? If you want to blow your capital, by all means go for it.
If you want some tips regarding investing; what to do and what not to do in the stock market – then take a look at this video about investing.
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Tags: finance, online investing, Stocks, wealth building
Developing An Investment Strategy
Oct 10, 2009 wealth building
There are a few things to take into consideration when developing your investment strategy.
Corporate Actions A good way that you can predict whether a specific stock may fluctuate upwards or downwards is by checking into the individual company with which you intend to invest. If there is an impending action on the part of the company such as a take-over or a merger then you may see a dramatic increase in the share price even if the market trends in general are taking a downturn. You can increase your chance of beating the market average by simply knowing a bit of information about a company.
Dividends Another great trick for knowing ahead of time in which direction the share prices will go is to know when the dividend payments will be paid. Some investors actually only invest for the purpose of dividend farming.
This simply means that they will purchase the stocks to take the dividend yields and then sell them when they become ex dividend. You may see a relatively cheap stock, but you should check to see if it is ex or cum dividend. Buying a stock ex dividend means that you are not entitled to the dividend allocation of the stock that you bought. The person who is selling that stock receives the dividend and then sells it at a lower price to you.
Opinions Finally, there is the fact that people are much like sheep; if one says sell then most of the herd will surely follow. If the media says to sell then you shouldn?t just sell blindly, you should investigate further and make your own decision.
Remember that the media is not paid to give you a good bargain or opportunity. The same is true for family and friends, too. Just be confident in your own investment strategy and don?t be afraid to go against the herd if you?ve done your homework and know your own mind.
Michael Jones is an expert investor and hedge fund manager; find out what he has to say about investing in the Australian Share Market and the best approach for investing.
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Tags: Australian Share Market, finance, Investing, online investing, Share Market, wealth building
Two Ways To Lose Money In The Stock Market
Oct 10, 2009 wealth building
There some classic mistakes that people make when investing in the stock market that will guarantee that they lose their money. In order to be a successful investor you need to avoid these mistakes. There are a number of challenges to becoming successful in stock market investing and the mathematician Carl Jacobi loved to say “invert, always invert” which is a very good tool to use in this situation. Focusing on the ways to lose money can be more effective than knowing the ways to make it. The point is to try and minimize the mistakes to stay ahead of the game.
Trade fast and trade often
Warren Buffet’s partner in business, Charlie Munger refers a lot to the great mathematical advantages you can enjoy simply by ‘doing nothing’ to your portfolio. To lose our money very quickly, we’re going to blindly ignore the extremely large tax benefits of holding onto the stocks long term and consider how brokerage will impact things. A person who buy and sells or ‘turns over’ all of the stocks that are in their portfolio several times during the year is going to typically be a few percents in back of the eight ball even when the brokerage rates are at a low 0.3%.
Follow the mainstream media
Munger spoke of the human condition of ‘incentive-caused bias’ often; it explains how the media functions in regard to the stock market. It is a widely held belief that the most emotion, dramatic and confrontational coverage of events will sell more newspapers than the more factual and rational reporting. This might be correct, but the decline in newspaper sales and circulation would suggest otherwise. The tendency to induce a panic state in investors when a state of calm would better serve them suits the media’s interests much better.
The incentive-based bias doesn’t just affect the media, though. You can see how the honest managing directors are able to first convince themselves and then convince their board members and finally their shareholders that an offshore acquisition or a hostile takeover is beneficial for everyone and especially themselves.
Don’t fall into the trap of bad investing practices; you can learn a lot from the experts who can give great advice on investing in the share market.
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Tags: Australian Share Market, finance, Investing, online investing, Share Market, wealth building
Investing Tips For The Beginner
Oct 10, 2009 wealth building
There are few general rules to remember and follow if you are starting to invest your money in the stock market. The first and most important thing to remember is that you will be contending with the ups and downs. You should not freak out when your stock takes a down-turn and then immediately react by pulling out your money; that is actually the quickest and most effect way of losing you money.
People watch their stocks go down a bit, get scared and decide they need to abandon ship before they sink any farther. When that happens, they usually notice it going back up and then immediately regret the decision.
It won’t always be the case, but it’s a very good thing to remember as it very typically happens that way. If a stock goes down, then it will eventually come back up. The cases where this will not work is in the case of a company scandal where the company CEO’s are involved in embezzlement; this is the only reason you should sell right away after a downward turn.
The nature of the beast is that the stocks will fluctuate, and some fluctuations may be scary. If you’ve done your homework and you are not just investing on a whim or a gut feeling, then have confidence in your research. Investing is all about knowing the stocks you are investing in and knowing what things can affect them.
Here’s a great example: say you’ve hear some news about a new tax that will affect a clothing company and you know that this will adversely affect their bottom line, with this information you know that it would be a safe bet to steer clear of all textile companies as the new tax will surely be affecting them as well. Simply paying attention is all you need to be successful in the stock market.
Check out this great video; it has a number of questions and answers from an expert who can give you the low-down on investing.
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Tags: Australian Share Market, finance, Investing, online investing, Share Market, wealth building
Can You Predict The Stock Market Movements?
Oct 10, 2009 wealth building
You may be able to predict the movements with some well-informed guessing, but the more important question is whether your investment strategy is strong enough to profit regardless of the market moving upwards or downwards?
You may think that it?s impossible to turn a profit when the market has taken a downturn, but you are incorrect. With the right knowledge and know-how you can find a number of ways to increase you return no matter how the market fluctuates.
You should not try to focus on the market as a whole for one thing. The market is made up of smaller parts called stocks and as ridiculous as it sounds for me to state the obvious like that, you really need to remember that it?s the individual stocks that make up the whole of the market and you should focus mainly on the stocks in which you plan to invest.
In order to predict trends you can simply look to the websites of the various world markets to see charts that will allow you to find the trends of every stock. The information is free to view by anyone.
Go to the site of the market you wish to invest in and simply click the links that bring to the charted information about your stock of interest; you will see the squiggly lines that represent the market fluctuations. The trick now is interpreting what this information means. The charts will give you the information that is a snapshot of the market trends over the last few months.
Charts are very useful tools because history tends to repeat. As you watch the graphs and charts as they get updated you may start to notice certain trends developing. You can plot the purchase and sell points on any section of the graph. Knowing how the pricing affects each of the stocks will allow you to increase your chances of buying low and selling high.
Get more information about investing by viewing this quick video about the Australian Share Market.
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Tags: finance, online investing, Stocks, wealth building