- 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").
- 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...
 - 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...
- 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...
- 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...
- 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.
| - 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.
- 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.
- 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...
- 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.
- 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.
- 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...
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