Investing - The Basics

[winston]

What You NEED to Know to Be a Successful Investor By Dr. Steve Sjuggerud

"Steve, I'm just trying to get all this stuff figured out," my friend Charlie told me over the weekend. He's just starting out in investing.

"I'm paralyzed," he said. "I don't know what to do. I'm reading everything… But I'm not actually doing anything with my money."

"Charlie, you're doing the right thing," I said. "Learning first – and not doing anything stupid with your money – is exactly the right thing to do."

Charlie is not alone…

I'm sure many of our readers are in a similar situation. So today, I'm going to cover some of the important basics of successful investing.

These are helpful for beginning and seasoned investors… They're a great reminder about the most important things to understand when it comes to ­­­the market.


1. You aren't going to get rich overnight through investing.

A proper investment is one that has at least a two-year horizon. Said another way… Any investment that can double your money in a month is likely risky. You could lose all your money just as quickly. If you don't adjust your thinking in line with this, chances are you'll end up losing a lot of money.


2. Start small. That keeps your investing "tuition cost" low.

I don't mean "tuition cost" in the traditional sense… I call your "investing tuition" the money that you inevitably lose on your first investments because of something you didn't know or understand. Start small, and keep that tuition cost low.


3. Don't invest in something you don't understand.

One of the fastest ways to lose money is to put your funds into something you don't really understand. If you don't understand how you'll make money on the investment – and you can't point out your risks – you are not ready for that investment.

Go study some more. And if you still don't understand, simply skip that investment.


4. What's a good return these days?

Is 5% a good return? A decade ago, 5% was a bad return… But today, 5% is (sadly) a good return on your safe money. That's because banks today are paying near-0% interest. And you get paid less than 2% for putting your money away for 10 years. Any more than that and you are taking on real risk.


5. Where should you invest now?

Younger investors (under age 50) should focus their learning on property and the stock market. Both property (in Florida, at least) and stocks are the best values they've been in decades (with the exception of the March 2009 bottom in stocks). I could be wrong.

You could lose money. But I think these are your best shots at making "real" money investing in the next three to five years.

[winston]

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6. Don't put all your eggs in one basket.

Don't put your entire net worth in one property… And make sure you spread your stock holdings around as well by first investing in funds that hold a bunch of stocks.

Something like the SPDR Dow Jones Industrial Average Fund (DIA) – which holds 30 stocks, including IBM, ExxonMobil, and Wal-Mart – is a good, "one click" way to own a basket of stocks.


7. History repeats – or at least it rhymes.

It's amazing how investors never learn that history repeats. The recent bust in property prices is a good example.

In 2006, people thought property prices could never go down. And now, people think property prices can never go up. The truth is somewhere in between.

Keep in mind… you want to SELL an investment when it's expensive and everybody loves it (like housing in 2006). And you want to BUY an investment when everybody hates it (like housing today). But…


8. Don't fight the trend.

To increase your odds of making money, you don't want to try to catch a falling knife. That is gambling, not investing.

Instead, it is much safer to grab that knife once it's hit and settled a bit. In other words, don't buy a stock that is going down. Instead, buy something that has started going up…


9. Cut your losses early.

There's no better way to prevent massive losses than to set – and stick to – an exit strategy on every investment you make.

It's the simplest thing you can do to continually increase the value of your portfolio. The best way to do this is a "trailing stop." If you're not familiar with it, check out yesterday's edition of DailyWealth.


10. When in doubt, don't do it.

If you have any doubt about putting your money into a new investment… don't do it. Instead, keep reading and learning. That keeps your investing "tuition cost" way down!

These are rules to live by. And they're not just for beginners. Every investor – experienced or novice – should stick to these rules.

As for my friend Charlie… by reading and researching first – and not putting money to work yet – he's made all the right moves.

I urge you to follow Charlie's lead. Learn as much as you can about the markets and investing. Follow these 10 rules. And you should be successful…


Source: www.dailywealth.com

[winston]

TOL:-

What's your edge ?

Since the Financial Crisis, a lot of retail invesors have abandoned the markets.

Your counter-party is now probably a professional. So what's your edge ?

a. Do you think you can really read the charts, much better than your counter-party ?

b. Can you really analyse the financials, much better than the other investors ?

c. Do you really have more and better information, than your counter-party ?

Just because you have have read a few Investment Books, watch CNBC or Bloomberg, receive some Analyst Reports etc, do you really think that you are better than your counter-party ?

Besides your big ego, what else do you have ?

[profittaker]

i have no edge, so I take smaller profit and happy with it.

[winston]

i have no edge, so I take smaller profit and happy with it.

If you are making money, obviously you have an edge, especially in this type of market which is been dominated by professionals.

The question then becomes, "How do you leverage up that edge ?".

[winston]

Hong Kong’s ‘Young Stock Market Whizz’ by Alex Ferreras

(Source: Li Xueying Asia News Network (MCT) — Standing at a gangly 1.8m, Simon Siu Fai looks like a typical undergraduate who enjoys playing basketball and fiddling around on his computer.

But it is not computer games that he is playing as his fingers flash across the keyboard.

The 24-year-old is managing his family’s money on the Hong Kong stock exchange – to the tune of HK$1 million (US$129,000).

Asked how he feels about doing that, he says with a shrug: “People feel that it is exciting, like gambling. But if you follow strict rules on how one should trade, investment is actually very boring.”

Not quite the kind of answer one expects from a “young stock market whizz”, as Siu has been called since he triumphed over 1,000 other university students in an investment contest in March. It won him HK$13,000 in prize money as well as accolades in this city that runs on the adrenalin of moneymaking and deal-cutting.

Siu, who studied financial engineering at the Chinese University of Hong Kong, used software he had developed to calculate market trends and time trades during the competition.

The top 10 finalists were each allocated HK$20,000 and given two months to grow that money. Siu finished at the top when he increased that sum to HK$32,624.

He’s had plenty of practice at investing.

He was only 13 and studying in Fuhua Secondary in Singapore – where his parents had sent him to get a bilingual education – when he began reading up on investment, his interest piqued by the Robert Kiyosaki bestseller, “Rich Dad Poor Dad”.

At 16, he opened an account on Fundsupermart.com, an online trading platform, with his mother’s help as he was underage.

He started with S$20,000 from his parents – Dad is an engineer and Mum owns a trading company. He doubled it to S$40,000 by the time he was in Jurong Junior College, but the 2007 financial crisis left him with just S$10,000.

After his JC studies, he returned to Hong Kong but did not stop investing. Today, that pool is worth HK$1 million.

The lesson he has taken away from his early setbacks is a simple one.

“Always follow the trend. It doesn’t matter if you’re not ahead but you must be in the right direction,” he says.

“And if it’s not big enough, don’t go in. If you go in, hoping it will go in the direction you want it to, that’s gambling, not investing.”

It harks back to his basic philosophy about investing: that it’s a mathematical puzzle that can be solved using a formula based on historical performance data of stocks and market trends.

This underpins the computer software he designed as part of his university thesis, and which he monitors every day to analyse the market.

His dream is to perfect it so that one day, he can be a Warren Buffett reaping the fruit of his investments.

He is not interested in starting and managing profitable companies and becoming a business tycoon like Li Ka Shing, and has turned down job offers since he graduated in June, preferring to focus on his investments in a study room at his family’s apartment in Lantau, and getting a master’s degree in finance.

“I don’t want to work at a job until I retire. I want to have the time and financial freedom to do what I like. I want to give something to society.”

And that “something” is to start a social enterprise, a business with a heart.

His idea is to create what he calls “wealth management classes” aimed at students between the ages of 11 and 16.

“Many parents know how to invest, but they don’t teach their children how to,” he explains.

Some may wonder if such classes will end up teaching impressionable teenagers the wrong values and to be fixated on money.

It cuts both ways, says Siu, who points to the trend of bankruptcy among young working adults who overspend and max out their credit cards because they are ignorant about managing money.

The classes will teach young people “about the importance of saving and investments”, he says, as well as an understanding of money flows and the role of governments and banks.

He intends to start wealth management classes after completing his master’s programme next year. Such classes are already being taught in Taiwan.

“We are a major financial centre. We should be better at this.”

http://www.loansafe.org/hong-kongs-youn ... rket-whizz

[winston]

How to Invest - Ways to Make Your Money Grow By John DeFeo

http://www.thestreet.com/story/11748100 ... L_wal_html

[winston]

An Idiot's Guide to Investing By Shah Gilani

Let's talk about investing, in human terms and how to consistently make money by being a simpleton.

Everyone loves to complicate things, which is detrimental to your financial health, especially when it comes to investing.

Personally, I think the quest for meaning has something to do with human nature (at least for humans with a modicum of intelligence) and our need to find the meaning in all things.

"What does this mean?"

"What does that mean?"

"What is the meaning of it?"

"Meaning what?"

We just have to know, don't we? Why? Because we think if we understand the meaning of things, then we know. Knowing may be an absolute, but not when it comes to meaning.

Meaning, in the sense we're talking about, isn't knowledge. It's more of an interpretive thing.

And that's the problem with trying to find meaning in everything that moves markets.

Take for example how you interpret the meaning of actions taken by the Federal Reserve, by banks, by Congress and by other investors.

Somehow, we think that if we know the meaning of others' actions, we can dig down into some deep base of knowledge and make "more better" informed investment decisions.

Well, here's the rub: While the search for meaning may be worthwhile as an endeavor, especially if you're making long-term, locked-in investment decisions (which is mostly inadvisable , unless you're buying a house), it's more a waste of time and money than you realize.

If you want to make money in the markets, you have to make decisions. There are only two decisions that matter, only two decisions that you have to make, ever.

Trust yourself.

In the back of your mind, without even consciously trying to figure it all out, you probably get it. Most people actually get lost subsequently trying to get "meaning" consciously - looking for the meaning.

Like I said, making money is about two decisions only. They are: Buy it? Or Sell it? That's it.

Take the whole fiscal cliff trap - and how you're supposed to invest under present circumstances...

We all knew the fiscal cliff was coming. And we all know that they didn't fix anything. They've just kicked the can down the road again. So what does that mean for the markets?

Buy or sell?

It doesn't matter. Or, at least it shouldn't matter. Why? Because nothing has happened so there's nothing to do. If you're invested, don't complicate things. Don't look for any meaning in any of this.

Here's how I untangled all the meaning I tried to interpret from all of the things that were happening this past summer.

First, I stopped trying to look for meaning where there was none.

Second, I looked for what I knew and hung my hat on that.

The Fed was doing more quantitative easing, keeping interest rates low, and stuffing the banks with money. There's no looking for meaning in that. You could look at what that means for the state of the economy, or the state of banks, but that's too much looking for meaning.

The Fed easing means markets are probably going to go higher, or at least the Fed is going to provide a backstop. That means buy, not sell.

So, this summer, in both my investment newsletters, we bought high-yielding, high-paying dividend stocks for income that we weren't going to get anywhere else. And we took several positions that made sense because they diversified our portfolios.

We didn't sell anything going into the year-end with all the fiscal cliff talk about what it would mean. We did buy some portfolio insurance, which was simply a buy decision.

And here we are today. We rode out the fiscal cliff because we didn't know what any of it meant. So it all got reduced to "do we buy or sell?"

That's what we did. We bought some downside protection and had stops in place on all our positions in case the meaning of going over the fiscal cliff was: SELL.

That's it, it is just that simple.

I've made money in the markets every year for some 30 years - in spite of the fact that I look at what things mean (after all, I'm only human). For me and for you, making money has to do with only two decisions. Personally, I don't put a lot of meaning on either of them.

If I buy and I'm wrong, the only meaning that has is that I made a bad decision. I fix that by making another decision. It's not hard.

If you want to make money, make decisions. Stop looking for meaning and make buy and sell decisions based on whether you are making money or not.

Source: Money Morning

http://moneymorning.com/2013/01/11/an-i ... investing/

[winston]

Have What It Takes To Invest On Your Own? Here's A Checklist To Help You Decide by Michael Chamberlain

http://www.forbes.com/sites/feeonlyplan ... ou-decide/

[behappyalways]

Do introverts make better investors? By Chris Taylor

(Reuters) - Think of the successful Wall Street investor, and you are likely to envision a hard-charging, aggressive, Type-A personality - someone who can carry on multiple conversations, keep an eye on four computer screens, yell over the trading din and watch CNBC all at the same time.

What if you have all that wrong? What if it is the quiet person in the back of the room, and not an extrovert like Gordon Gekko from "Wall Street", who is the superior investor?

Research suggests just that. Many extroverts possess thrill-seeking gene variations that introverts lack, and which are predictors of financial risk-taking, according to Kellogg School of Management professor Camelia Kuhnen. That means bulldozers like Jim Young, the supremely confident broker played by Ben Affleck in "Boiler Room," might be biologically prone to making unduly risky investment decisions, while the quiet introvert might have more solid, research-based instincts.

"Extroverts are often drawn to investing because of the thrill of it," says Laurie Helgoe, a Charleston, W. Va.-based clinical psychologist and author of "Introvert Power", a book about how introversion can be a strength instead of a disadvantage. "They can get caught up in the anxiety of missing out, and if they operate out of that anxiety, they are likely to close down thinking and lose perspective. The investor down the hall with the door closed may be the one to watch."

Behind that closed door you might find someone like Berkshire Hathaway's Warren Buffett - "a classic example of an introvert taking careful, well-calibrated risks," says Susan Cain, author of the bestselling book "Quiet: The Power of Introverts."

Buffett eschews public speaking and works in Omaha far from the frenzy of Wall Street - but produces enviable results. Berkshire Hathaway's compounded annual gain from 1965-2012 was 19.7 percent, thumping the S&P 500 and making for a total gain over that period of 586,817 percent, according to the firm's most recent shareholder letter.

Those returns weren't achieved by taking on crazy gambles, but by adopting a more plodding style of buying shares in big, blue-chip companies and holding them for many years. "Introverts are more cautious than extroverts, but this doesn't mean they avoid all risk. It does mean that they look before they leap, as Buffett is known for doing."

IT'S GENETIC

There may be a biological basis for how introverts and extroverts approach their investments. Gene variations can cause extroverts to seek out a high from the neurotransmitter dopamine, which is traditionally associated with reward-seeking, while prompting introverts to chill out on the neurotransmitter serotonin, which is correlated with a steadier course of well-being and happiness.

If that need for a dopamine fix leads to frequent trading, that would seem like a major handicap for extroverts. After all, most investors are notoriously bad at timing the market: One oft-quoted study by academics Brad Barber and Terrance Odean - finance professors at University of California, Davis and University of California, Berkeley, respectively - found that the returns of frequent traders lagged the general market by a whopping 6.5 percent.

Yet if all it took to be a great investor was a quiet temperament, every introvert would be filthy rich. Shy folks have their own investing handicaps.

Introverts can get so bogged down on detailed research that they miss key opportunities. Their natural inclination towards caution - while protecting them on the downside - can also prevent them from taking the big risks that can lead to big rewards.

"Coming out of the financial crisis, when stocks were cheap, many introverts who were not risk-tolerant did not get invested, and are still not invested. So they missed out," says Michael Pompian, a partner with Mercer Investment Consulting who co-authored a study in the Journal of Wealth Management on how personality type can affect investment choices.

The true ideal might be an 'ambivert,' or someone who can blend the best elements of both, according to Susan Cain. That way investors could maximize the advantages of each personality style, while minimizing the disadvantages.

To help figure out where you fall on the spectrum, you could take a true/false questionnaire Cain developed (bit.ly/fcvOYS). A sampler: "I often let calls go through to voicemail"; "I dislike conflict"; "I prefer not to show or discuss my work with others until it's finished".

With that knowledge in hand, you can then tailor your environment to improve your investment decision-making. Extroverts tend to perform at their best in an arena with lots of stimulation and background noise, like a trading floor, while introverts generally make smarter decisions in a lower-stimulation environment like a quiet office with a closed door.

"Extroverts can learn when it is time to pull back and gather more information," advises Helgoe. "And introverts can learn when it is time to trust their analysis and push forward."


Source: Reuters


http://www.reuters.com/article/2013/07/ ... RH20130729