Investing - The Basics

[behappyalways]

How to invest like ... John Maynard Keynes
http://www.telegraph.co.uk/finance/pers ... eynes.html

[winston]

Three easy steps to dramatically improve your investment returns by Dr. David Eifrig

Without a plan... you're simply gambling...

To keep your investment returns high, you need to go into any investment knowing when to sell. Without a plan and strategy for selling, it's easy to get into trouble.

And knowing when to sell is only half the battle... you must also have the discipline to follow through with your plan. Sometimes, greed can slip in at the last minute. Sticking with a plan to sell is critical to protecting your profits.

Listening to my readers, I know this is one of the most difficult problems many individual investors face.

That's why, today, I want to share a few secrets to selling...

There are three keys to selling investments...

First, whenever you invest in something, it's important to write down why you bought it.

This means literally getting out paper or an index card (or opening a spreadsheet) and writing down your reasons for owning it – for dividend or interest income or potential growth-driven capital gains. You should note any data or metrics that support your investment decision. (For example, a low price relative to its earnings or cash flow.)

The second thing you need to do is write out when you'll sell the investment.

Do it on the same piece of paper and at the same time you're buying the investment. This includes writing out your expected percent return and over what time frame.

This is important as it expresses your plans before you become emotionally attached to the act of purchasing it. Once you own something, "confirmation bias" – the tendency to favor information that confirms your beliefs – tends to cloud your judgment. So it's better to outline your goals ahead of time.

The simplest way to know when to sell an investment is to set a simple stop loss or trailing stop loss. Both kinds of stop losses take the emotion out of the decision when an investment works against you.

With a simple stop loss, you set a fixed point at which you'd sell... essentially setting the maximum amount you're willing to lose if you're wrong on an investment.

With a trailing stop loss, you raise your selling price every time the stock hits a new high... Say you buy a stock at $50 a share and set the trailing stop at 20%. If the stock price falls straight down, you'd sell at $40 a share. But if it rises to $80 a share, you would sell on a decline back to $64. ($80 x 20% = $16. You subtract that $16 from the $80 high to determine the $64 stop price.) That way, you've protected yourself and pocketed a 28% gain.

You can also use fundamental analysis to determine when you might sell a stock – selling when the shares become overvalued relative to the company's earnings or cash flow and compared with other potential investments.

Or you can do what I like to do... and create a sell level on a chart by marking an expected return one-year out and then using that as the technical trigger. For example, I'll take a stock bought at $100. If my plan is to make 12% a year, I'll mark $112 and $124 on the chart. If in one or two years the stock hasn't traded above those levels, I'll sell. This sort of technical analysis can also incorporate moving averages or price support and resistance levels to guide you. (I don't use this much for selling, but I do when buying.)

However you determine your selling prices, it's important to write things down. This teaches you discipline. And it helps illustrate when investments are working out, and when they aren't. That way when it's clear they aren't working the way you envisioned... you can change things.

Finally, you must review your investments. You should do this at least once a year – preferably every six months. Make sure the reasons you bought remain valid.

One trick I use to make sure I stay disciplined is to ask myself whether I'd buy more right now or recommend it to friends or family members. If the answer is no, it's probably time to sell.


Souce: DailyWealth

[winston]

This Popular Trading Advice Is Terrible By Brian Hunt

Read "how to trade" books for more than a few months, and you're bound to come across this terrible advice: Before you get started with "real" money, you should "paper trade."

Paper trading is when you trade but don't actually trade. It's "pretend" trading.

And in my opinion, it's a worthless activity.

Paper trading is when you imagine you've bought, say, 100 shares of your favorite stock. You might write down all the important trading information, the number of shares "purchased," the date, and the buy price… After the trade is over, you might even write down how much "money" you made or lost.

I know many people are getting into trading for the first time in their lives right now. They're tired of handing money to their broker or financial advisor, only to see it disappear like it did during the Nasdaq bust, the real estate bust, or the credit crisis. I don't blame them for wanting to learn how to trade…

But paper trading is an ineffective way to go about it. You see, money decisions – from buying a mutual fund to selling a stock to buying a television – are emotional.

Becoming a good trader isn't just about learning how to read charts or buying cheap assets. It's about suppressing the desire to "make it all" on one big trade… learning how to take small losses… and learning when it's time to simply sit out of the game for a while.

Paper trading doesn't get you any "live fire" training on overcoming your emotions. It's like trying to learn how to hit a baseball by swinging an imaginary bat. So what's the new trader to do?

Try "trading small."

If you have $30,000 to manage, take $3,000 or $6,000 and trade with it for a few years. This "beginner period" is when you will be as bad a trader as you'll ever be… so make your trading tuition as cheap as possible.

Trading just a small amount of money will bring your emotions out "to play." They'll do their best to torpedo your trading plans. They'll produce awful advice like, "I'll wait a while… It'll come back" or, "I'll just turn this trade into an investment."

I don't know about most people, but even if I have $1,000 in a trade, I stand up and take notice. I know I worked hard for that money. Emotions are stirred up. I manage them.

After you become comfortable taking small losses… after you get used to trading positions of just 1%, 2%, or 5% of your total capital… after you put together a track record of large wins and small losses, then you can consider allocating more of your wealth to your trading account.

You'll never learn to do those things without trading real money. Even a small amount will do.


Source: Growth Stock Wire

[winston]

In the new year resolve to clean up your financial skeletons in your closet

by joyce chuah

http://www.thestar.com.my/Business/Busi ... ur-closet/

[behappyalways]

John Maynard Keynes
In a 1934 letter, Keynes said: “As time goes on, I get more convinced that the right method in investment is to put fairly large sums into enterprises which one knows something about and in the management of which one thoroughly believes.”


Warren Buffett
Buffett looks for companies that not only generate profits consistently but are able to reinvest them in the business. Not all companies do this; even if they make profits, they may squander them by using the money to expand into less lucrative areas.

Best quote: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”



Sir John Templeton
First, he believed in buying at a time of extreme pessimism, when most people would instinctively avoid the stock market.

Best quote: “The only way to avoid mistakes is not to invest — which is the biggest mistake of all.”



Benjamin Graham
After losing money in the great crash of 1929, he decided to look for shares whose prices offered a “margin of safety” – where the value of the company’s assets exceeded the value placed on it by the stock market.


Like Buffett and Templeton, Graham believed in going against the crowd. “Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic,” he said.

Best quote: “In the short run the market is a voting machine, but in the long run it is a weighing machine.”



Peter Lynch
He believed that ordinary investors could steal a march on the professionals by using their eyes and ears in everyday life. “I stumble on to the big winners in extracurricular situations,” he says. “Apple computer – my kids had one at home, and then the systems manager bought several for the office. Dunkin’ Donuts – I loved the coffee.”

Lynch didn’t just go straight out and buy the shares, but used these insights as a basis for further research.


Best quote: “Invest in what you know.”



The easy way to invest like the gurus
http://www.telegraph.co.uk/finance/pers ... gurus.html

[winston]

You Don’t Have To Be A Genius To Make Money In The Stock Market By Jonathan Webb

Walter Schloss opened his partnership in 1955. From January 1956 to January 2000 his partnership returned 15.3%. To put that in perspective, the S&P index returned 11.5% over that same 45-year period, and every dollar invested in 1956 had grown to $663 by the end of 2000 (including management fees).

Schloss, along with his son who joined the company in 1973, had defied Modern Investment Theory.

Another surprising feat that most mangers don’t share with Schloss is that he never went to college. By his own admission, “he wasn’t very bright man.” Working at Graham-Newman he wasn’t the golden child — that was reserved for Warren Buffett. Essentially he was a 34-year-old secretary working at a “dead-end job” for Benjamin Graham.

At 39 he left Graham-Newman and started his own shop. He raised $100,000 (with $5,000 of his own money) and set off to become one of the most successful hedge fund mangers of all time.

How did he do it?

He stuck to what he knew: buying (and selling) cheap stocks. He got himself and his partners very rich by following a system — the system he learned while working with Ben Graham.

Schloss didn’t rely on computers, tickers or any other mechanism; he relied on nothing more than a trusty Value Line survey that he borrowed from the office building he worked in (he was too thrifty to buy a subscription for himself).

Schloss become one of the most successful investors of our time, not because he was the smartest man in the room, but because he was willing to give up buying on emotions and followed a system that was proven to work.

If you want to make money in the stock market, forget trying to be the smartest man in the room — instead focus on your investment system. The returns will take care of themselves.


Source: GuruFocus

[winston]

This 3-minute trick will make you a vastly better investor... but most people never do it.

http://thecrux.com/if-youre-a-new-inves ... e-mistake/

[winston]

A Young Investor’s Guide To A Secure Retirement

By Chad Fraser

Source: Investing Daily

http://www.thetradingreport.com/2014/03 ... etirement/

[winston]

The Only Investment Show Worth Watching

by Alexander Green

http://www.investmentu.com/article/deta ... y9_IM40OZQ

[winston]

People Make Their Finances More Complicated Than They Need To Be

By Roger Nussbaum

Source: Random Roger

http://www.thetradingreport.com/2014/04 ... eed-to-be/