Wednesday, 30 September 2015

30-Sep-2015 CSE Trade Summary

Quote for the day

“I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader.” - Paul Tudor Jones

Tuesday, 29 September 2015

29-Sep-2015 CSE Trade Summary

Click here to download 29-Sep-2015 
Trade Summary csv File

52 week high and low prices reached in today's trading session

Crossings - 29/09/2015 & Top 10 Contributors to Change ASPI

Top 10 Gainer / Loser / Turnover / Volume for the day
Top 10 Foreign Activity for the Day   

Quote for the day

“Many traders I've met over the years approach the market as if they're smarter than other people until somebody or something proves them wrong. I have found this approach eventually leads to disaster when the market proves them wrong.” - Jim Leitner

Monday, 28 September 2015

28-Sep-2015 CSE Trade Summary

Quote for the day

“I'm not sure one can really define why some traders make it, while others do not. For myself, I can think of two important elements. First, I have the ability to imagine configurations of the world different from today and really believe it can happen... Second, I stay rational and disciplined under pressure.” -  Bruce Kovner

Sunday, 27 September 2015

Look At The Operating Cash Flow Instead Of Earnings

By Shares Investment 

When a company releases their annual reports, or financial earnings, a specific part that's most looked at, is none other than earnings, or net income.

I mean, yes. It's important, because earnings affect Earnings Per Share, which affects the Price Earnings of the stock and other profitability ratios such as Return on Equity and Return on Assets.

But I'm telling you, as much as it is important for us to look at net income, it can be easily manipulated.

Too easy if you ask me.

That's because elements that make up net income can include “one off gains”, “other income” and other accounting engineering to boost this figure to beautify the income statement.

Operating cash flows however takes a stricter approach to measuring the quality of the operational profits, and it is much harder to manipulate compared to Net income.

Accrued Earnings, Not Counted In Cash Flow
Accrued earnings generally come from accrued sales, where sales are booked and accounted for in the income statement, but not yet received.

This will in turn translate to accrued earnings, which will help boost the different profitability metrics mentioned above.

The operating cash flow will flag such elements and purely take into consideration of cash actually received, so naturally, the accrued earnings will not be included, and thus more conservative as a figure.

Therefore if you see net operating cash flow lesser than net income, you need to start realising that there could be something wrong with the cash cycle, and there might be a need to look at the revenue recognition policy of the company.

Consistency In Operating Cash Flow
Apart from helping you flag the possible manipulation done to the income statement, consistency in operating cash flow, especially when it’s consistently positive and higher than the net income, will tell you that the operational earnings are of “quality”.

Also, a consistency of positive operating cash flow figures will probably help you sleep better at night.

Price To Cash Flow
For comparison purposes, you can also use price/operating cash flow (P/CF) ratio as a metric when you compare a company to its peers.

The important factor to see if the P/CF is a positive one. This will give you a quick insight to see which companies are the cash burners, and which are the better ones in your comparison.

Operating cash flow, though stricter and more conservative then net income, can still be manipulated, although a lot harder.

This is still a better number to look at compared to net income alone and can also serve as a quick metric for you to screen stocks. 

Quote for the day

“Wisdom requires an experience-based knowledge of the world (including, especially, the world of human nature). It requires mental focus, reflecting the ability to analyze and discern the most important aspects of acquired knowledge, knowing what to use and what to discard, almost on a case by case basis (put another way, it requires knowing when to follow rules, but also when the usual rules no longer apply). It requires mediating, refereeing, between the frequently conflicting inputs of emotion and reason, of narrow self-interest and broader social interest, of instant rewards or future gains.” - Stephen Hall

Saturday, 26 September 2015

King of Sugar shares pearls of wisdom

By Emiko Terazono

Malaysian entrepreneur Robert Kuok on his trading philosophy

Robert Kuok, the billionaire Malaysian entrepreneur, maybe better known as the man behind the Shangri-La Asia hotel group, but in the commodities world, he is nicknamed the “King of Sugar”.

The 91-year old tycoon and uncle of Wilmar co-founder and chief executive Kuok Khoon Hong, still watches the sugar market daily, and trades the commodity so he can pay for his bottles of Petrus 1989, one of the world’s rarest and most expensive wines.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article.

Mr Kuok rarely gives interviews, but he shared his trading philosophy with Jonathan Kingsman, founder of Kingsman sugar consultancy and occasional Financial Times commentator, for his recently published book The Sugar Casino .

Here are some of his pearls of wisdom:

Always take profits promptly

“Not knowing when to take a profit is the Achilles heel for a trader. Take profits! Don't wait. If you have a profit you have to take it. If you wait it will be your downfall.”

The sugar market is prone to over supply

“In the sugar market, there is always over production. There is no point hoarding sugar. There is always a bumper crop coming up.”

Don't be arrogant when trading

“You have to be humble because you are never always right. You don't need to convince anyone. You can trade as a very humble man.”

You’re either a trader or you're not

“Traders are born, not taught.”

Cut your losses and walk away if someone abuses your trust

“If you want, you can keep that person as a friend but do so at arm's length; no more business dealings. But it is better to just cut the cord and part company. If you bear a grudge you are just hurting yourself; you are not hurting the other person. It is like throwing good money after bad. Keep your wits, keep your humour and if you are a good man, luck will come your way again. You will see another opportunity and you will grasp it.”

Always adhere to moral practices

“If someone asks you for a bribe you should say that neither you nor your company could do that. But stay polite. Don’t stand on your high horse and preach morality at that moment.”

There is nothing that can't be traded

“I have a simple motto in life: every single material thing that I have in life can be traded. It is for sale. It is a question of, when, where, to whom and price. The first three are more important. If you like a person the price becomes unimportant.”

The Commodities Note is an online commentary on the industry from the Financial Times

The Sugar Casino is available on Amazon ebooks.

The Importance Of Cash Flow Analysis

As we embrace the full influx of financial reports for the earnings season of 1st quarter, it is pertinent to note that besides paying close attention to profit margins and management’s view of the company that you’re looking at, an important piece of the financial report called the “cash flow statement” should be given a closer look as well.

The importance of cash flow statement lies in the fact that it explains the changes in cash and gives insight to the company’s operating, investing and financial activities. Also, cash flow statement will unveil the company’s ability to generate cash to meet its short-term obligations, thereby assessing if company’s liquidity and solvency position is sound.

In this article, I will show you a brief example on assessing the health of the company using Cash Flow Analysis. Before I go forth with my explanation, a stark contrast has to be established whereby “High Profits Do Not Equate To Healthy Cash Flows.” Many quickly assume that having high profits generally mean that the company is doing well. Ironically, profit figures could be easily manipulated via unconventional ways such as “off balance sheet financing” or “window dressing”, thereby making profits look “good”.

In a nutshell, the cash flow statement is made up of 3 categories, namely operating activities, investing activities and financing activities.

Operating activities – These are revenue generating activities of the company, which normally includes cash receipts from sale of goods and services, cash payments to suppliers for goods and services and disposal gains and losses of fixed assets.

Investing activities – These are activities that involve the acquisition and selling of fixed assets (long termed assets like land, building or plant), cash receipts from the disposal of fixed assets and cash payments to acquire fixed assets.

Financing activities – These are activities, which change or impact the size and the composition of owners’ capital. They include cash proceeds from issuing shares, or debt and payment of dividends.

The cash flow statement presented below will entail explanations on the analysis on the health of company A.

From the above cash flow statement, even if Company A’s income statement reflects a profitable figure, Company A is not earning real profits but instead “creating” profits. This can be seen by its significant disposal of fixed assets and lowering of provision, thereby reflecting “poor quality” of profits.

Breaking it down further, red flags should strike you upon noticing the fact that net cash from operating activities is negative, indicating unsuccessful business operations in terms of cash earned. Despite improvement in cash flow where closing cash and cash equivalent albeit being negative narrowed, closer attention will enable you to see that said improvement was actually attributable to the huge sell off of its fixed assets (plant and freehold land and building).

Because purchasing and owning fixed assets such as plant and machinery will subject Company A to depreciation charges, thereby weighing down profits, Company A has replaced the disposed fixed assets with long term leases. Long-term leases are akin to “renting”, in which things like depreciation or maintenance of the asset are absorbed by the owner and not the lessee. However, long-term leases will subject Company A to future cash flow commitments, which could create further liquidity problems.

Insufficient cash flow also led to the company raising funds through the share issue, which was done to cover the deficit but Company A’s business still reflected an overdraft figure of $60 million due to its poor operations. This is in addition to the fact that it chose to pay out dividends of $125 million despite such performance.

Summing this piece up, it is pertinent to remember that high profits do not equate to healthy cash flows. It is often easy to manipulate profit or balance sheet figures by adopting policies which capitalize on the grey areas of accounting standards, but it is not as easy to do that on a cash flow statement. To further enhance the analysis, financial ratios could also be used hand in hand with the cash flow statement to better understand the story told by the numbers.


Quote for the day

“I'm not saying that controlling your mental state is the magic solution to trading success. It's just part of the answer. But when you admit that the answer is within yourself, you've come a long way.” - Van Tharp

Friday, 25 September 2015

25-Sep-2015 CSE Trade Summary

Quote for the day

“A wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the over-abundance of information sources that might consume it.” - Herbert Simon

Thursday, 24 September 2015

7 Secrets Behind Warren Buffett’s Billions

By Robert Allen

Warren Buffett is incredibly successful, and he's built a mountain of wealth.

Today, he's the second richest person in the world, worth an estimated 73 billion dollars. That's greater than the combined GDP of many countries.

Want to grab lunch with the man? That'll run you $2.2 million, based on a 2014 bid by a man in Singapore.

Even more mind boggling, if you had invested just $100 in Warren Buffet's Berkshire Hathaway fund in 1965, you'd now have more than $1.2 million stored away, off that tiny investment.

With a track record in wealth creation like this, Buffett's life undoubtedly has lessons that we can all apply to amplify our own riches.

Below, we'll uncover 7 secrets behind Buffett's multi-billion-dollar wealth engine.

These are the exact strategies and techniques Buffett uses.

So pay attention.

No matter where you are on the investing spectrum, you can implement these wealth-building techniques and begin reaping the rewards in your business and life today.

The 7 Secrets Behind Buffett's Billions:

1. He reads a lot

Buffett believes reading works a lot like compound interest. You build your knowledge base, day-by-day, by adding more information. And over time, that compounds upon itself. Until one day, you're surrounded in a wealth of ideas, strategies and concepts.

Buffett consumes an average of 500-600 pages per day (that's a really dense book!), and he credits reading for his ability to make smart investment decisions.

But for Buffett, it's not about the number of pages he ingests. Rather, Buffett knows you must apply critical thinking and deep analysis to the materials you study.

That's how you take your knowledge and money game to a whole new level, and you reap the dividends from this intellectual investment for years to come.

2. He’s methodical in his approach

Impulse decisions often fail, especially with investments. But Buffett spends hours every day researching, writing, and exploring new economic theses. So when it's time to make a rapid-fire conclusion, he’s already prepared.

In business and investing, it's important to hustle and capitalize on opportunities. But Buffett's method teaches us that we should strategically hustle.

That way we're not scrambling and taking un-calculated risks out of desperation.

3. He's not an overnight success

Buffett’s billions are the product of years of hard work and mountains of effort. In fact, many people don’t know this, but Buffett started investing when he was just 11 years-old. Talk about taking advantage of investing early!

Also, Buffett's first business was earning fees off pinball machines that he placed in local businesses as a teenager.

Many like to imagine Buffett's business acumen and stock-picking talent to be magical in some way.

The reality is he's worked incredibly hard, over many years, to earn every penny he’s worth. All 73 billion of them.

4. He relies on the numbers

Everybody has an opinion and a reason for telling stories a certain way. But rather than sifting through other people's ideas, Buffett turns to the hard data and facts.

When he does this, he's able to make smarter decisions, more consistently. Looking at the numbers also gives Buffett an advantage. He's able to test new investments ideas, before anyone else comes to the same conclusions.

His actions are not clouded by the biases of others, and relying raw numbers continues to provide him with ridiculous returns.

5. He’s a master of influence

Warren Buffett said that the single most valuable skill in his life is the ability to influence and persuade people. When he first started out as an investor, he was such an awful speaker and persuader that he took a Dale Carnegie course to learn how to communicate with people. It changed his life.

Without influence, Buffett wouldn't be able takeover companies, to buy investors out, to convince people to work for free, or to negotiate multi-billion-dollar deals. Learning this skill of communication was so impactful that, today, the only diploma he has on his office wall at Berkshire Hathaway is the one from the Dale Carnegie course. It's one of his proudest achievements.

6. He’s persistent

In the face of fear and uncertainty, Buffett has taken enormous financial risks to buy stocks, invest in foreign countries and bailout companies on the brink of bankruptcy.

Many investors lose belief and get nervous when times are tough.

But Buffett won't give up; he won't take no for an answer. He keeps pushing himself and his investments to grow faster, to be more, and to outpace everyone else.

Buffett knows that the best investments come from taking calculated risks over long time horizons. He’s not in investing to make a quick buck, here and there, by trading in and out of stocks.

He's in it for the long-haul, and his patience continues to pay off for him. Among investing legends, he has the longest track record of beating the market average. No one else is even close.

7. He lives below his means and invests

This one almost goes without say, but it’s a really important point. Without cutting expenses and saving his money, Buffett wouldn't have the opportunity to beat the market through the years and earn billions of dollars.

After decades of living this way, Buffett never has to worry about money again. In fact, he’d have to spend nearly 200 million dollars per day to lose his net worth in a year. That’s like buying a mansion in the Hamptons and a private jet for 365 days straight, before losing it all!

Needless to say, he’s set for the rest of his life. This is the foundation for Buffett's long-term success, and for anyone aspiring to establish wealth, this should be an essential part of their financial plan.


Quote for the day

“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” - Mark Twain

Wednesday, 23 September 2015

23-Sep-2015 CSE Trade Summary

Quote for the day

“Everything relates to failure. We grow up experiencing failure as children and then we go through it as adults. The key is understanding that failure is how we improve. You do this not by ignoring the failure, but by recognizing it, examining it thoroughly and not making any changes until you truly understand it.” - Henry Petroski

Tuesday, 22 September 2015

22-Sep-2015 CSE Trade Summary

Quote for the day

“In bull markets, people have faith; in bear markets, doubt. The other way around might be more profitable.” - James Grant

Monday, 21 September 2015

21-Sep-2015 CSE Trade Summary

Quote for the day

"Success is neither magical nor mysterious. Success is the natural consequence of consistently applying the basic fundamentals." - Jim Rohn

Sunday, 20 September 2015

How to break into and Succeed in Finance

1. Be multi-talented; Be genuinely interested in many things, including those that may not be related to your career;
2. Work harder than everybody else (Coaches know that hard work beats talent most of the time).
3. Find something you are good at, then hone that skill until its razor sharp;
4. Read voraciously. Build a library, learn from the masters.
5. Your academic background matters less and less the longer you are out of school.
6. Create something of value that others want — and are even willing to pay for;
7. Meet as many people in your field as you can. Learn from them, and when possible, be genuinely helpful.
8. Develop a speciality.
9. “Once in a lifetime” opportunities come along more frequently than you imagine; Be prepared for when those opportunities presents themselves;
10. Be lucky.

Read more:

96 Years Ago, This $310-Billion Man Revealed the Secrets To His Success

By Alex Banayan 

He’s richer than Bill Gates and Warren Buffett combined. And he started off as a broke Scottish immigrant. I’ve been dreaming of interviewing him for my book. The only problem? He died 96 years ago.

How did Andrew Carnegie, the man with the world’s largest steel empire, rise from no money, no opportunity, and no connections — to the richest man alive?

I’ve spent hundreds of hours researching Carnegie’s success, and here are the 5 best lessons from the man himself.

1. Get Out Of The Shade

One afternoon, a young man walked into Carnegie’s office to interview him about his success. Carnegie could have told the young man about his journey from poverty to riches or about his wild dealings with John Rockefeller. But instead, Carnegie talked about something else.

His optimism.

Carnegie said the most important thing in his life was his “ability to shed trouble and to laugh through life.” He said that seeing life through a lens of positivity was worth more to him than millions of dollars.

“Young people should know that it can be cultivated,” Carnegie said. “The mind, like the body, can be moved from the shade into sunshine.”

And it makes good business sense, too. By not getting weighed down by the negative, Carnegie could keep his focus on the positive, bounce back from failures faster, and see opportunities where other people didn’t know they existed.

Ask yourself: do you sometimes slip into pessimistic thoughts and negative self-talk? Are you missing opportunities because you let your mind fall under “the shade”? How much would your business grow if you taped a note above your desk that reads: “move your mind into the sunshine”?

2. Tell Him to Keep the Ten Thousand

Carnegie and J.P. Morgan were once partners in a business. One day Morgan wanted to buy out Carnegie’s stake, so Morgan asked how much he wanted for it.

Carnegie said his shares were worth $50,000, plus he wanted an extra $10,000 on top — so a total of $60,000. Morgan agreed to the terms. But the next morning, Carnegie got a call.

“Mr. Carnegie, you were mistaken,” Morgan said. “You sold out for $10,000 less than the statement showed to your credit.” Morgan had calculated that Carnegie’s stake was actually worth $60,000, and with the additional $10,000, that made $70,000. So Morgan sent Carnegie a check for the full $70,000.

Carnegie responded by telling Morgan to keep the extra $10,000 — which, adjusted for inflation, is over $130,000 today. Morgan replied, “No thank you. I cannot do that.”

When reflecting on this story, Carnegie wrote, “A great business is built on lines of the strictest integrity.” He learned from Morgan that it is better to lose money in the short-term if that means maintaining your reputation for the long-term.

Think hard about this: Is your business doing everything it can to ensure that reputation comes before profits?

3. Follow the Rule of Nine-Tenths

There was a story that changed Carnegie’s life. It’s about an old man who lived a life of many tragic events. People in the town pitied him, but the old man said, "Yes, my friends, all that you say is true. I have had a long life full of troubles. But there is one curious fact about them – nine-tenths of them never happened."

Carnegie learned from that story that most of the problems and “what if’s” we imagine almost never occur. Our brains have a tendency to dream up the worst-case scenarios and act accordingly — yet most of those almost never happen. And even if they do occur, they’re almost never as bad as we imagine.

By reminding himself of the “rule of nine-tenths,” Carnegie freed himself from the fear of the unknown and was able to take the risks he needed to achieve his radical success.

Be honest with yourself: Do you get caught up on the “what if’s”? Would your life be better if you followed the rule of “nine-tenths” and reminded yourself that most of those problems won’t actually happen? Are you willing to make a commitment right now to live by that rule?

4. Jump On 'Flashes of Lightning'

When Carnegie was hired for his first job, the interviewer asked him how soon he could start. Most people would have asked for a couple of weeks to transition. But Carnegie’s answer? “I can start right now.”

“It would have been a great mistake not to seize the opportunity,” Carnegie wrote. “The position was offered to me; something might occur, some other boy might be sent for. Having got myself in I proposed to stay there if I could.”

Carnegie didn’t overthink it. He preferred to act quickly and risk something going wrong than to act slowly and risk losing the opportunity entirely.

And this rule worked in reverse, too. When Carnegie realized he owned shares in a company he didn’t like anymore, he told his partner to sell all the shares right away. When his partner said there’s no rush, Carnegie shot back, “Do it instantly!” And good thing he did… that company soon went bankrupt.

Of course, it’s important to study the facts, but if you’re presented with a real opportunity, don’t risk losing it by taking your time. As Carnegie would say, jump on the “flash of lightning.”

How many opportunities do you think have passed you by because you didn’t jump on them right away? Are you ready to act like Carnegie and make your answer “I can start right now”?

5. Find Your "$2.50" Motivation

Early in his career, Carnegie was given a bonus of $2.50. When he gave the bonus to his parents to help support the family, he said “no subsequent success, or recognition of any kind, ever thrilled me as this did… Here was heaven upon earth.”

And from that point on, Carnegie knew he wanted to be rich. But not for himself. He dreamt of making the money for his parents, so they could live a good life.

As soon as Carnegie identified that external motivation, his drive turned into high gear. The key is that he wasn’t motivated to help himself. He was motivated to help someone else.

So whether you’re doing it for your parents, your children, or to help people who don’t even know your name — you need to have that motivation clearly in your mind to fuel you through the inevitable hardships on your journey to success.

Are you clear on who your “$2.50” motivation is? Who are you doing it all for, other than yourself? If you don’t know, figure it out. And if you do know, how can you remind yourself of that “$2.50” motivation everyday?

Andrew Carnegie is proof that if you work hard, keep your mind “out of the shade,” take risks, act quickly, and build a reputation of the strictest integrity — anything is possible.

And the craziest part? Carnegie is just one example of how it’s possible to work your way from poverty to radical success.

Quote for the day

“Very early in my career, a veteran investor told me about the three stages of a bull market. Now I'll share them with you. The first, when a few forward-looking people begin to believe things will get better. The second, when most investors realize improvement is actually taking place. The third, when everyone concludes things will get better forever.” - Howard Marks

Saturday, 19 September 2015

Top 10 Rules for Forecasting


Quote for the day

"Know what you own, and know why you own it." - Peter Lynch

25 Habits of Highly Successful Investors

By Sam Eder 
Successful people form good habits.
Day in day out their actions are a reflection of effective processes that have been ingrained through hard work, discipline and education.
This is particularly true of professions that require high performance, such as elite athletes, military personal, leaders and investors.
The good news is these habits are nothing mystical. They can be taught and sometimes simply awareness of them can make a vast difference.
Join me on a wander down the path of the habits of investment success and see how you can change for the better.

Habit #1:Successful investors take responsibility.

The cornerstone of a effective approach to investing is responsibility. By taking responsibility for your own profits and losses, you gain control over your financial destiny.
It is easy to look for others to blame, be it your money manager, stockbroker or even the market itself. By accepting it is you who is the ultimate determining factor in your success, you gain the ability to work on yourself and improve the way you invest.

Habit #2: Successful investors have in-depth objectives.

They have clearly defined goals.
You should know the reason why you are investing. Perhaps you are looking for an early retirement on the beach (nice!) or would like to help a loved one live a better life (nicer!). These powerful motivations keep you from straying “off the beaten track” and help you invest with discipline.
Once you have uncovered your greater purpose, you can then define a returns goal/s (i.e. 20% a year) and a risk goal (i.e. I don’t want my account to be down more than 20%). Once you have these objectives, you then can develop a position-sizing model to help you meet them. More on that later.

Habit #3: Successful investors are prepared to take risks

Acceptance of risk is a challenge for many investors. They would (or course!) prefer that they could make money without ever having to lose any.
But losses are a fact of life in the markets. And accepting this is a positive thing. It frees you to create an investment plan that lets you move towards your goals.
I recently saw the power of this concept in action, at a nine-day training course with market wizard and world-renowned trading psychologist Van K. Tharp.
Tharp had recently shifted his tolerance for risk in his company retirement account. Previously his goal had never been to have a losing year. He then established a new rule that allowed him to risk the chance of a 25% drawdown on the account, but only if the investment opportunity was A-grade.
By doing this, he was able to invest heavily in a silver stock that was trading for below the amount of cash it had in the bank, let alone the value of the silver it had in the ground. The stock quickly rose from $3 to $11 while he was heavily invested, giving him the best year he had ever had.
If he had not accepted the risk of a 25% drawdown on his account, he would have never been able to capitalise on the opportunity like he did.

Habit #4: Successful investors have an edge.

An edge is an advantage that over time will provide you with healthy profits from the market. All successful investors have established an edge over the markets.
Examples of edges that successful investors have include:
  • Buying undervalued stocks
  • Waiting for a certain chart pattern to occur
  • Following an investment strategy like William O’Neil’s CANSLIM
  • Getting investment advice from someone with an edge.

Habit #5: Successful investors have powerful beliefs.

A. “It’s easy to make money if I am well prepared”
B. “The markets are difficult and risky”
Which of these beliefs does the successful investor have?
It’s obvious that it’s A.
What is not so obvious is that the successful investor would have held that belief before they became successful.
Top investors make a habit of cultivating a powerful belief structure.
And they are prepared to pick and choose the most productive beliefs and wear them, even if they might not necessarily believe them when they first put them on.
By choosing the beliefs that will make you successful, you give yourself a framework that will allow you to prosper and grow. The very act of choosing the belief creates an attraction towards it becoming a reality.

Habit #6: Successful investors achieve their goals through position sizing…not stock picking.

Position sizing is the most important habit a successful investor can have. Bar none.
Position sizing is not “asset allocation” or some other financial mumbo jumbo. It is knowing exactly how much you are risking on each investment so that you can achieve your objectives.
It is based off the historical performance of your investing system for the current market type (see point 6).
For example, if you know that for every 10 stock trades you place in a bull market on average you will have eight winners that will be twice as big as losers, then you can risk more than if you have only four winners out of every 10 trades.
Successful investors know their goals and their expected performance, and decide how much to invest based on this understanding.

Habit #7: Successful investors identify the market type

Would you invest the same way in a bull market as a bear market?
Successful investors don’t. One of their core habits is market type identification.
They know what the current market type is and adjust their strategy appropriately. Furthermore, they are aware that the market type could change at any time and are well prepared for the shift.

Habit #8: Successful investors stalk the market

Successful investors are hunters.
Using a well-cultivated habit of patience, they stalk their investments before placing them.
Once you have an idea for an investment it can be prudent not to enter a trade immediately. It’s best to wait to place trades under ideal conditions. Wait for the right set-up to occur and then zoom in on the price charts to look for an entry with an even better risk to reward (see point 13 for more on risk/reward).

Habit #9: Successful investors have simple entries

Take a successful investor and an amateur investor.
One is complex.
The other is simple.
But perhaps not in the way you might think.
The successful investor has the habit of simplification, particularly around when to buy. They know that the entry is not as important to their results as how much they trade or how they manage the trade once they have entered (exits).
Amateur investors tend to overcomplicate and overvalue the buy signal, when their real focus should be elsewhere.

Habit #10: Successful investors have complex exits

While they value simplicity, successful investors will have many reasons to exit from an investment.
For example, they may have:
  • A initial stop-loss
  • A profit objective when they enter the trade
  • A trailing stop to protect profits while in the trade
  • A risk/reward stop to ensure the trade makes sense
  • A different trailing stop that comes into play if the market type changes.
These exits all serve to maximise profits and minimise the inevitable losses.

Habit #11: Successful investors let their profits run

An oldie but a goodie. One of the habits of successful investors is to let their profits run.
If you are in a good trade, don’t be tempted to take your profit quickly. Use a method that protects your gains, and at the same time allows you to capture big wins if the trade does go well for you.

Habit #12: Successful investors cut short their losses

The flipside of letting your profits run is cutting short your losses.
Successful investors see losses as a “cost of doing business” and are quick to realise any losses.
Amateurs will do anything to avoid taking a loss, including holding onto a big losing position.
If you do one thing when investing in stock, make sure you have a stop-loss and abide by it.

Habit #13: Successful investors understand risk/reward

A cardinal habit of the successful investor is checking the risk/reward of a trade before entering into a position. If it is not favourable, then they won’t place the trade.
You want to have a risk/reward of at least 2:1 on any individual trade. Your potential profit from the trade should be twice as big as your potential loss. This means that if you only get 50% of your investments correct, you would still come out a winner.

Habit #14: The more they lose the more money they make

I’m going to leave this section to the esteemed Dennis Gartman of the Gartman Letter, who sums this habit up perfectly with this story:
“I'm good at trading and I'm wrong a lot according to my wife. When we got married, we sat down the first year and she said you know this is really very sad. You had a good year at trading. You made us a very nice living this year but Dennis you were wrong 53% of the time this year. I thought this was terribly harsh. You couldn't even beat a coin toss. I got out of it by saying, Sweetheart I'm so in love with you that it’s coloured my ability to think. She bought it. I got another year. We sat down the second year. She said, my wife the accountant, one plus two equals three. She said this is really very sad. You made more money trading this year then you made the previous year. But this year you were wrong 57% of the time. And people pay you for your ideas. And I’m standing by the notion last year that I told you. You can’t even beat a coin toss. You need to do better. Sweetheart I'm trying.  Third year we sat down. My wife, the accountant, one plus two equals three. She said this is sad. You made more money than you made the previous two years. That’s lovely. I want to stay with you. But Dennis, you were wrong 68% of the time this year. Almost 7 out of 10 of your trades lost money. You have got to do better. I told her Laura I'm trying. I'm gonna try. Fourth year we sat down. My wife, the accountant, one plus two equals three. She said, you know, I get it now. You had the best year you ever had. Made more money this year then you made the previous three years. That's lovely. This year you were wrong 81% of the time. I think if you can just be wrong 95% of the time. We're gonna get stinkin' rich. I think I can do it. I think I have it in my grasp to be wrong.”

Habit #15: Successful investors have a mental model of the market

Successful investors develop a story about the market and how it works.
They organise their thinking into a detailed set of beliefs about how the market works and have a routine in place to monitor its elements.
See this video by Ray Dalio, the world’s top hedge fund manager, who has made his mental model come to life.

Habit #16: Successful investors know that their mental model is often wrong

Successful investors trade what is in front of them.
Most likely, you will have several beliefs about how the market works (your mental model).There will be occasions where those beliefs don’t mesh with reality. Even if your belief is logically correct, the market may do something different.
If you hold too tightly onto that belief, then you may not see the market for what it truly is and miss out on significant opportunities or hold onto a losing position for too long.
Have a “grain of salt” about your mental model as the real world won’t always match up.

Habit #17: Successful investors treat investing as a business

Successful investors manage their investments like they would a business.
They have a carefully constructed business plan for their investing and follow a “rules-based” approach to selecting, entering and exiting positions.
A business plan is a formalisation of many (if not all) the habits in this article. It includes:
  • Objectives
  • Psychology
  • Trading strategies
  • Contingency plans.
Developing your plan should be a fun experience – and your plan should be enjoyable to read. You’re not in school or at work so make it lively and motivating!

Habit #18: Successful investors record their investments diligently

If I was to ask you “what percentage of successful investors record their trades?” what would you say?
If you said 100%, you would be the closest to being correct.
If I asked you “what percentage of amateur investors record their trades?” most likely the numbers would be reversed.
Now, what if I ask you “are you recording your trades?”
Successful investors have developed the habit of recording each trade they make. They know that without recording their results, they won’t know what is working and what is not, so they won’t know what to change to improve.

Habit #19: Successful investors review and monitor their investing systems

Successful investors will periodically review their investing strategies, as well as monitor their performance in real time.
If a strategy starts to deteriorate, they know about it and can stop trading or switch to a new strategy.
For example, if you were trading mining stocks and then the fundamental picture changed to be less favourable towards mining stocks, impacting your performance, you would know early on in the piece.

Habit #20: Successful investors do self-work

“An investment in knowledge pays the best interest” – Benjamin Franklin
Successful investors know that they are the most important factor in the profit equation.
Their success or failure is entirely dependent on their own skill and ability to execute, so they spend less time focusing on the market and more time on themselves.
To emulate their success, you want to cultivate a habit of self-improvement that allows you to consistently function at a high level.
Occasionally you will get your butt kicked by the markets. Self-work will give you a foundation of strength to remain persistent even in times of stress.

Habit #21: Successful investors prepare like an elite athlete before an event

Like an elite athlete, successful investors only place trades when they are in an optimal mindset. If their “head space” is askew, then mistakes happen.
Similar to their athletic counterparts, these investors have a routine to ensure that investment decisions are made when they are in the zone.
This could include:
  • Visualising and rehearsing prior to the event (trade)
  • Meditating to calm the mind and boost creativity
  • Regulating their emotions by using a technique such as feelings release
  • Verbalising instead of internalising the investment decision to a colleague or loved one.
By freeing yourself of negative emotions such as fear or greed, you put yourself in a state from which you can make unencumbered and clear investment decisions.

Habit #22: Successful investors unify body and mind

There is a deep connection between the performance of the mind and the health of the body.
You may notice that when you feel an emotion you feel it in your body. You feel tense across the chest or nervous in the pit of your stomach.
By helping your body relax, you help the mind to relax too. Successful investors know this and make a conscious effort to maintain their physical health. It’s not at all uncommon for top investors to practice yoga or run marathons.
You don’t need to go to the extreme of running marathons; you could simply do some stretches and breathe before making any investment decisions.

Habit #23: Successful investors know when to stop

As tempting as it may be to stay continuously bonded to the market, successful investors know that sometimes they need to switch off and unplug.
If you:
  • Have just suffered a loss that was large or traumatic
  • Are feeling burnt out
  • Are gambling instead of investing because you need some excitement
  • Have loved ones that are not getting the attention they need.
Then it could be time to take a break. And be proactive about it. Plan breaks ahead of time, and plan to spend time with your family regularly. You have other areas of your life that need attention too.

Habit #24: Successful investors practise gratitude

Successful investors practise the formidable habit of gratitude.
If you have the ability to achieve your goals through investing, you are fortunate. It can be wise to be thankful and acknowledge the good things you have in life.
Gratitude is highly recommended for investors. And like the earlier habit of powerful beliefs, it is worth practicing before you achieve the success you are chasing.
Gratitude keeps you happy and helps you stay grounded. Overconfidence and arrogance are the market demons that gratitude keeps in check.

Habit #25: Successful investors understand investing is a game and that they make the rules

As an individual you invest in an unlimited environment.
No one is telling you what to do. No school teacher. No boss. No stock broker.
Successful investors know that they make the rules.
Yes. There is a framework – a matrix – which you operate in, but within that you are free to choose how you play the game of investing. So why not choose rules that advantage you?