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Success Secrets

How to protect investment capital and minimise losses?

What are the secrets to success in the markets?

If we try to summarise the key steps to success in the financial markets, we will find that they are not really secret. They are openly available. The problem is that there are some finance industry professionals who would prefer us to not talk about them. Some of the professionals have vested interests to protect.

Here is a summary list of some key points that will go a long way towards helping to be successful:

  1. Beware the "sage advice" - There are many clichés and axioms to do with investing. Things like: "time in the market, or timing?", "a rising tide lifts all boats", "When Wall Street sneezes other markets catch a cold", "dollar cost averaging...", "the trend is your friend". Some of the sharemarket gems are worthy, while some are actually furphies. See Robert's list of Share Market GEMs. Also see more information about the finance industry cynic's view of the world.
  2. Long term? - NOT! - Accept that many investments are best NOT kept for the long term. Even blue chip shares can plunge in value, and result in opportunity costs.
  3. Plan and strategy - If you decide to invest in shares, then make sure to have some form of investing/trading plan and strategy in place. Read more about plans and strategies.
  4. Diversification? - Be careful not to overdo this. If you spread your investments, then the portfolio performance will be closer and closer to the performance of the index, in which case you might just as well invest in an index-tracking fund, and ride the roller coaster of bull and bear markets.
  5. Trends - Identifying and riding a rising trend. Remember that once a price trend is underway, it is statistically likely to continue.
  6. Risk and money management - Make sure to have some effective risk management in place. This will be described in your Investing/Trading Strategy and will encompass some rules to limit each position size, and the portion of your total investment capital that is at risk. Also pay some attention to stock liquidity, to make sure that if you want to sell quickly, there ought to be some buyers ready to take your stock. Effective risk management will help to sleep at night. Also see more on risk management in the Share Market Ready check list.
  7. Exit strategy and Stop loss - Make sure to have an effective Exit Strategy and Stop Loss approach. This will be covered in the risk management portion of your strategy.
  8. Utilise technical analysis - Don't forget that the opinions and emotions of the market participants are captured in the price charts, and it can really pay to understand the stories in the price charts. This is essential in order to maximise the effectiveness of entry and exit timing. See more details... 
  9. The 4 Windows approach - If the broad field of technical analysis is a little daunting, then utilise the 4 Windows approach to get started.
  10. Balance the time - Have you ever noticed that some people spend more time on fundamental analysis than other people? And some spend large amounts of time on other aspects of investing? But why do they do that? See the Balance the time discussion to understand more.
  11. Emotions and psychology of investing - Understand the issues at play with emotions, and the psychology of investing; and the different cognitive biases that can affect performance, eg: Confirmation bias, Herd instinct, Over-confidence effect, andFamiliarity Bias (there are many more). See more details about the Emotions and psychology.

These steps will not guarantee success, but they are essential ingredients to help on the pathway to success in the markets. Don't forget to see Brainy's Share Market Ready check list.

See more information above right....

More Information

This topic has been discussed in a public presentation. See the presentation slides....

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Last revised: 20 June, 2015.