Brainy's Share Market Toolbox Brainy's
Share Market Toolbox
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Investing Problems
& FAQs

Having some problems with your investing or trading?
Something not quite working right? Or having trouble getting started?
The answer might be in the list below...

Having some problems?

Along the road of successful investing there can be many road blocks, or even just barriers to impede our success. There are many possible barriers, and many investors manage to overcome them eventually, sometimes by trial and error, or learning the hard way by experience.

Some of the key barriers show up in the questions that investors and traders ask. The following questions and issues are discussed in more detail below.

  1. Can't get motivated - "I have trouble devoting the time to my research and investment activities." See comments below...
     
  2. Sleeping at night? - "I spend too much time worrying about my investments. Worrying that they might crash in value." See comments below...
     
  3. Blue chips are not performing - "I thought that blue chip companies are supposed to be good performers; but I have noticed that their share price fell significantly in the last financial crisis." See comments below...
     
  4. Emotions are powerful - "I find the underlying emotions make me rather nervous and perhaps over-cautious." See comments below...
     
  5. Losing money - "Some of my investments are simply losing money. From week to week, their face value is falling and falling." See comments below... 
       
  6. 100% success rate"I am only starting out with this investing/trading thing, and I am striving for a 100% success rate. I will always be right with my investing/trading decisions. In life, I am always right." - Actually, this is not possible.  See the discussion below...
      
  7. Small losses can still put us ahead? - "I have heard that even many small losses can put us ahead; but it doesn't seem to be working for me." See comments below...
     
  8. Can I go broke taking profits? - "I have heard it said that I can't go broke taking profits. So, I like to cash in my shares after a reasonable profit. Is there something wrong with this advice?" See comments below... 
     
  9. Fundamental analysis seems complicated, non-standard and long-winded - "I am trying to get a handle on Fundamental Analysis, but everyone is telling me to focus on different things. Study company annual reports - but I am not an accountant." See comments below... 
       
  10. Analysts' valuations and recommendations are not consistent - "I have noticed that at any point in time, six different stock analysts will have six very different valuations for BHP's share price (for example). So, what's the story?" See comments below... 
     
  11. The risks? - "I feel that the risks of investing in the share market are too high." See comments below about how to reduce and manage the risk...
     
  12. My position size - "Does it matter how big I make the position size? Can I invest as little as just $500 in shares?" See comments below...

Share Market Ready?

After all this, you might find it helpful to study more detail in
Robert's Share-Market-Ready checklist...

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Discussing those issues...

Here are some thoughts on those questions and isses raised above...

  1. Can't get motivated - Having trouble getting motivated, or making progress, can often be a somewhat simple time management problem. It is easy enough to have good intentions, and to plan to spend some time reviewing "the market" and looking for investing opportunities; but it can all come undone for a couple of simple reasons:
    (a) If you don't have an investing/trading plan and strategy, then you might sit down to start, but be at a loss as to know where to start, and how to make those investing decisions. An Investing/Trading Plan and Strategy is essential. See an introduction to plans and strategies, and more details about plans and strategies.
    (b) To be very successful it can help if you have a specific block of time on certain days where you will focus on this activity. It's like the "breakfast or lunch routine" - many people religiously have their breakfast, or their lunch, at a fairly specific time each day. It's part of the daily routine. The investing/trading routine ought to be likewise. Have a specific time window where this is the activity that will take your attention, and don't let anything else get in the way (basic time management - list the tasks, and prioritise them based on both "urgency" and "importance").
     
  2. Sleeping at night? - If the portion of investment capital that is invested in one particular investment is rather large, then it can easily take over our thoughts and concerns. But if the portion of capital "at risk" is small enough, then losing that portion would not be significant. Many successful share market investors and traders utilise the so-called "2 Percent Rule". See information about Risk Management techniques...
     
  3. Blue chips are not performing - Many people mistakenly believe that blue chip stocks are the pathway to wealth. Well, unfortunately this is a long way from the truth. By having blue chip stocks in a portfolio over the long term will simply constrain the portfolio performance to either mediocre, or sub-par, returns. Read more about the truth of blue chip stocks...
     
  4. Emotions and psychology - Some of the investing experts who really understand the subject say that success with investing in the share market is about 80% emotion, and only 20% based on judgement and decisions. Read more about emotions...
     
  5. Losing money - Many investors have been convinced by the so-called professionals that they need to invest in the share market over the long term. They continue to peddle the lie that we can't "time the market". The honest truth is that we can "time the market", because thousands of people do it. One underlying approach to achieve this is to feel comfortable with selling a stock if it starts to under-perform. The active investors and traders of this world call this method the "Stop Loss" approach. Read more about the Stop Loss... 
     
  6. 100% success rate is NOT achieveable - This is one of the problems that many people confront when they start out investing or trading. They might have come from a scientific or engineering field where there is always one right answer. And it is terrible to be wrong. Many people in life pride themselves on being right all the time, and many people simply don't know how to admit they are wrong when they are wrong. With investing or trading in the financial markets, it is simply unheard of to be right 100 percent of the time. One of the first things that we need to do is be prepared to quickly admit a failed investment decision when we need to. It is possible to invest in a stock that is doomed for oblivion, and in these cases we need to quit the stock before it takes all of our money. This is what a Stop Loss strategy is for. But above all, be ready to admit wrong investment decisions.
  1. Small losses can be outweighed by big wins - Successful investors / traders might make ten or 20 investments (or more) in a year. And it is even possible to make a profit with many losses, and just a few wins. This is provided the losses are kept small, and the wins are relatively large. A Win to Loss Ratio of as little as 40% can still be a winning combination (that's 4 wins out of 10 investments, and 6 losses). Read more about the Win to Loss Ratio.
      
  2. How to go broke taking profits - Many people believe that they can't go broke taking a profit. This is far from the truth. If you properly analyse the number of wins and losses (and the win to loss ratio), and the amount of each win and each loss, it can be shown that an overall loss is possible. In order to stay in front, we need to have a few large wins that are large enough to outweigh all the (smaller) losses. If the losses are not small enough, they might outweigh the wins.
     
  3. Fundamental Analysis - The honest truth about Fundamental Analysis is that there is no on single analysis method. There is not one single step-by-step approach that we can learn. This approach is very broad, and it can be fairly simple, or it can be very technical and complex. Read more about Fundamental Analysis...
     
  4. Analysts' valuations and recommendations - It is very important to understand that when any analyst produces an "estimate" of what a company's shares are worth, they are looking at many different parameters, and massaging a whole bunch of numbers using a range of assumptions. One analyst will use his own knowledge and assumptions in a different way to another analyst, and arrive at a different value. And each analyst will be thinking that his assumptions are closer to the truth than the next analyst. Read more about Fundamental Analysis, and the alternative analysis approach that is known as Technical Analysis. Also see the clever blend of the two - Funda-Technical Analysis.
     
  5. Managing the risks - It is possible to manage the risks involved with investing, so that the risk level is reduced significantly. Some people believe in diversification, and hold an investment position in tens of stocks that broadly cover the whole market. This approach is successful at diversifying, and at minimising the risk - to a degree. What it does in reality is basically match the performance of the market index, resulting in significant devaluations during bear market periods and corrections, and long-term mediocre performance. This approach will not produce any big winners that result in significant portfolio out-performance. In order to have an overall portfolio performance that is much better than the index, and avoids the dips and crashes of the market, it is necessary to carefully stock-pick, utilise the Stop Loss approach, and manage risks to minimise losses.
     
  6. Position Size is important - Many novices start out by buying share parcels worth as little as $500. By the time you factor in the brokerage to purchase, and eventually sell, the share parcel needs to return something like 10% to cover the costs. In order to maximise the effectiveness of your trading, it is important to optimise the size of each trading position. That is, to maximise your profits on winning trades, you should take out the largest possible position that your strategy and risk management will allow (perhaps up to a degree). Otherwise, your profits will be smaller than they could be. An ideal minimum share parcel size to mitigate the brokerage and slippage costs is around the $1200 to $1500 mark; but would ideally be  at least double or triple this amount. Read more about position size...


Share Market Ready?

After all this, you might find it helpful to study the detail in
Robert's Share-Market-Ready checklist...

This is one of the many tools in Brainy's Share Market Toolbox.

The information presented herein represents the opinions of the web page content owner, and
are not recommendations or endorsements of any product, method, strategy, etc.
For financial advice, a professional and licensed financial advisor should be engaged.


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Last revised: 16 September, 2014.