Investment Strategies 01 (Nov 08 - May 10)

[winston]

Three Ways to Stop Making Emotional Decisions With Your Investments
by Marc Lichtenfeld

Highlights in this issue:
Why you should remember this line from Robert De Niro when investing.
It's tough to separate sentiment from reality when investing in this sector.
Three ways in which you can separate emotion from reality.

"You think they're your friends, but they're not your friends."

This was the frequent refrain from a landlord I had while in college. He was warning us on the danger of throwing parties and inviting people who we considered friends, but would think nothing of trashing the place.

I guess it's not surprising that renting his house to college kids made him a little paranoid. He often showed up at random times to make sure there was no revelry taking place. Once, he chased away some of my buddies as we were watching "Monday Night Football" (I guess the keg in the corner didn't help our argument).

This no-nonsense, unattached attitude is the perfect way to approach the stock market and your investments. After all, most investors have had stocks that we thought were our friends, but that ultimately turned on us and caused pain.

The trick is to not become emotionally attached to them.

This is easier said than done, so if you find yourself hanging onto stocks for too long, or investing more with hope and emotion than sound reasoning, allow me to give you some tips...

When it Comes to Emotions, Adopt the "Heat Mentality"

I was fortunate that my stock market education started at a trading desk, where we executed trades according to how the market and stocks were performing. Period. Nobody cared if the stock had a low P/E ratio... whether the company had the next great biotech drug... or was run by a terrific management team.

To us, stocks merely represented three or four letter symbols. That's it. In some cases, I didn't even know the names of the companies and couldn't have told you much about their businesses.

Sounds a bit clinical, doesn't it?

It was. And it served me well. I learned that you shouldn't get emotional about stocks. They're simply investment vehicles in which to park your money. Granted, you can be in a stock for five minutes or 20 years, but you should never form a relationship with them.

As Robert De Niro's character said in the movie, "Heat": "Don't allow yourself to get attached to anything you cannot walk away from in 30 seconds flat if you feel the heat around the corner."

Think about it. Many of us have owned a favorite stock - perhaps for years. Oftentimes, the longer you hold it, the more difficult it can become to sell it - even when you know you should.

We form an emotional attachment to the business that often has nothing to do with how the stock is performing - or how much money we're losing from it.

You Must Separate Emotion From Reality

I won't let those emotions get in the way of taking a profit or cutting a loss. If it doesn't work I'm not going to hang on to hope, looking for some morsel of data that justifies holding onto the stock.

But you simply cannot allow that to happen, otherwise you risk taking a double hit if things don't pan out in your favor.

So how can you remove emotion from the equation if you're not using a stop? Fight emotion with emotion.

Three Ways to Take the Emotions Out of Your Investment Decisions

#1: Write Down Your Reasons:
When you buy a stock, write down the reasons why you'd sell and post it somewhere near your computer. Perhaps it's when the stock hits a certain price, or when news on a particular drug comes out.

Whatever the reason is, write it down on paper and stick it in a visible place. That way, when your catalyst hits, it will be tougher for you to justify to yourself why you're going against your original idea.

#2: Phone a Friend:
This doesn't just work for "Who Wants to Be a Millionaire." Telling a friend or family member your reasons for selling a stock is even better than writing the reasons down for yourself.

After all, you'll face some serious peer pressure if you suddenly change your mind and refuse to take profits or cut a loss. Outsiders aren't as emotionally involved as you because it's not their money on the line, so they should be able to make you see that your original reasons are still right.

#3: Conduct an Annual Portfolio Review:
Review your portfolio at least once a year. Take a look at every stock and ask yourself why you're still holding it. If your answer sounds more like a justification than a legitimate reason, dump it.

Any time there is money involved, emotions run high.

But it's your job to remove as much of it as you can and focus on decisions that will benefit your portfolio.

[winston]

Five Ways to Outsmart 31,179 Other Investors
By Keith Fitz-Gerald, Money Morning/The Money Map Report

1. Position Your Portfolio

2. Limit Your Losses
Always make sure to manage your risk. Limit speculative positions to 2% to 5% of your overall portfolio value.

3. Avoid Surprises
We think about two things from the time we get up until the time we go to bed:
a) What’s the most likely thing that could cause me to lose money today?
b) And how can I avoid that?

4. Risk Less – By Saving More

5. Don’t Let Yourself Get Whipsawed Out of the Market

http://www.moneymorning.com/2009/09/10/ ... trategies/

[winston]

TOL:-

Need to remind myself of the following:-
Be patient and wait for the stars to line up for you before you take a big position.

And from the experts:-

Jim Rogers: "I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime."

( Don't spend your time and energy chasing mediocre trades and investment opportunities. Only move when the odds are overwhelmingly in your favor. )


Jesse Livermore: The big money is made is in the sitting ( or something like that .. )

( When he said sitting, he did not mean sitting on a position. He meant sitting and waiting for the stars to line up for you before you take your position )

[memphisb]

TOL:-

Need to remind myself of the following:-
Be patient and wait for the stars to line up for you before you take a big position.

And from the experts:-

Jim Rogers: "I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime."

( Don't spend your time and energy chasing mediocre trades and investment opportunities. Only move when the odds are overwhelmingly in your favor. )


Jesse Livermore: The big money is made is in the sitting ( or something like that .. )

( When he said sitting, he did not mean sitting on a position. He meant sitting and waiting for the stars to line up for you before you take your position )

acutally i feel JL method of sitting tight is only 50 %. The other 50 % we need to make use of rumours, news and analyst reports to sell while is 'HOT'. It works when going long.

[winston]

Doug Casey on the secrets of successful speculation
From Conversations with Casey:

The ideal speculator’s portfolio would be divided into ten areas, each totally different and not correlated with each other. Each of these areas should have, in your subjective opinion, the ability to move 1,000% in price.

Why is that? Because most of the time, we’re wrong when we pick areas to speculate in, certainly in areas where you can’t apply Graham-Dodd-type logic. But if you’re wrong on nine out of ten of them – and it would be hard to do that badly – then you at least break even on the one ten-bagger (1,000% winner). What’s more likely is that a couple will blow up and go to zero, a couple will go down 30%, 40%, 50%, but you’ll also have a couple doubles or triples, and maybe, on one or two of them, you’ll get a ten-to-one or better win.

So, it looks very risky (and falling in love with any single stock is very risky), but it’s actually an intelligent way to diversify your risk and stack the odds of profiting on volatility in your favor.

Note that I don’t mean that these “areas” should be ten different stocks in the junior mining sector – that wouldn’t be diversification. As I say, ideally, I’d have ten such areas with potential for 1,000% gains, but it’s usually impossible to find that many at once. If you can find only two or three, what do you do with the rest of your money? Well, at this point, I would put a lot of it into gold, in one form or another, while keeping your powder dry as you look for the next idea opportunity.

And ideally, I’d look at every market in every country in the world. People who look only in the U.S., or only in stocks, or only in real estate – they just don’t get to see enough balls to swing at.

[helios]

1,000%?

Super Incredible

[Musicwhiz]

1,000%?

Super Incredible

Yeah man, we need more geniuses like him, who can multiply our money beyond our wildest dreams.

[winston]

Ha Ha.. Becuz I have listened to geniuses like him and sat on my positions, rather than to trade them, I have lost a lot of money throughout the years.

Just last week, i did not take profit on a few positions and I ended up giving back my profits.

It's hard to reboot the mind and discard all the "expert quotes" that you have accumulated over the years.

[kennynah]

It's hard to reboot the mind and discard all the "expert quotes" that you have accumulated over the years.

just habitual.... its normal.. but i suppose you could always punch in a trailing stop order...but i know you dont like to expose your position in the open....so... no choice.... you will just have to monitor the price, or set an alert for action...

[Musicwhiz]

Ok, back to a very serious question - for those veterans out there who have been in the market for 10-20 years, my question is: Is it really tough to get a consistent decent +ve return every year? How many people you've known have actually done it (including yourselves)?

Thanks !