Thursday, 31 March 2016

Colombo Stock Exchange Trade Summary 31-Mar-2016

Quote for the day

“The price of success is hard work, dedication to the job at hand, and the determination that whether we win or lose, we have applied the best of ourselves to the task at hand.” -  Vince Lombardi

Wednesday, 30 March 2016

Colombo Stock Exchange Trade Summary 30-Mar-2016

Quote for the day

“Intelligent people who are open to recognizing and learning from their mistakes substantially outperform people with the same abilities who aren't open in the same way. Yet it is far more common for people to let their egos stand in the way of learning.” -  Ray Dalio

Tuesday, 29 March 2016

Colombo Stock Exchange Trade Summary 29-Mar-2016

Quote for the day

“The good trader knows how to actively manage risk and run a position. A good analyst should help find the trade or look for pitfalls in the trade. The key difference is in their stomachs. The great traders I know are able to manage large position sizes. That’s what makes them great.” - Andres Drobny

Monday, 28 March 2016

Colombo Stock Exchange Trade Summary 28-Mar-2016

Quote for the day

”In essence, if we want to direct our lives, we must take control of our consistent actions. It’s not what we do once in a while that shapes our lives, but what we do consistently.” – Tony Robbins

Sunday, 27 March 2016

My Investment Checklist

By John Huber 


A few different readers have asked about checklists and whether I use one. I have started to recently, and have found it helpful. A year or two ago I heard Mohnish Pabrai talking about the Checklist Manifesto, and how he implemented his own checklist into his investment routine. Pabrai made an analogy to pilots, who go through a detailed checklist just prior to a flight. Using a checklist can help you catch something you didn't check or didn't think about. It can also make your investment routine more organized and efficient.

Quote for the day

“Learn from your mistakes. Don't be misled by the day-to-day fluctuations in your equity. Focus on whether what you are doing is right, not on the random nature of any single trade's outcome.” - Richard Dennis

Saturday, 26 March 2016

15 Ways Millionaires Manage Their Money That Make Them Richer

By John Rampton


It's no secret that millionaires have different habits, qualities, and ways of thinking than the average person. Those habits are most prevalent when it comes to the ways that they manage their money. They have a unique way of thinking that actually helps them earn even more money by making wise financial decisions like the following 15 ways that they manage their money:

1. They're not impulsive.


How many times have you made an impulse decision while at the grocery store? Or how about when you are on Amazon? It's common for most of people to make a few impulsive decisions when making purchases. Millionaires, however, have the ability to delay gratification and hold back on making impulsive decisions.

There was a famous study conducted by Dr. Walter Mischel at Stanford in the 1960s that backs up this claim. Dr. Mischel gave preschoolers the choice of eating one marshmallow whenever they wanted. The other option was to wait until the adult came back into the room. If they could stand to wait until the adult came back into the room, they would received two marshmallows. Dr. Mischel has continued to follow his subjects through the years, and he discovered that those children who could wait for the marshmallows in order to receive two marshmallows instead of only receiving one, “have a lower BMI, lower rates of addiction, a lower divorce rate and higher SAT scores.”

Quote for the day

“An excellent decision maker and a bad decision maker will both make mistakes. The difference is what causes them to make mistakes and the frequency of their mistakes.” - Ray Dalio

Friday, 25 March 2016

15 Mantras For Becoming A Better Investor

Investing is simple but not easy. By avoiding certain mistakes and by following time tested strategies you can become a good investor. Mantras for becoming a good investor

1. Start Early

Albert Einstein said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.” If you start investing early the power of compounding will do magic for your investment. Start investing as soon as you start earning. The power of compounding exponentially grows your wealth. Watch the below video to know what magic the power of compounding can do to your investment.

Quote for the day

“It is not so much brilliancy of intellect, or fertility of resource, as persistence of effort, constancy of purpose, that makes a great man. Those who succeed in life are the men and women who keep everlastingly at it, who do not believe themselves geniuses, but who know that if they ever accomplish anything they must do it by determined and persistent industry.” - Orison Swett Marden

Thursday, 24 March 2016

Colombo Stock Exchange Trade Summary 24-Mar-2016

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

Wednesday, 23 March 2016

Colombo Stock Exchange Trade Summary 23-Mar-2016

Quote for the day

“The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone.” - Michael Marcus

Tuesday, 22 March 2016

How Big Is Samsung?

We've heard enough of Apple, Microsoft and Google. Have you ever wondered about Samsung? The company started way back in 1938 --- before even World War II started.

Samsung company wasn't even in the electronic business until 1960s. The company used to sell local groceries and noodles with initially 40 employees. Do you know the world's tallest skyscraper Burj Khalifa? Would you be amazed if we told you that Samsung built that skyscraper?

How big do you think the Samsung company is? They're the leader of most electronic devices and appliances. Most of you are familiar with it, but there are way more to know.

It's pretty amazing to know the company that you're mostly only known about its electronic business has many other businesses running throughout the world. To put things into the view, Anup Kayastha from TufiTech.com has created an interesting infographic about Samsung. Check it out below.



How Big Is Samsung? #infographic
http://www.visualistan.com/

Three Categories of Risk to Keep in Mind When Investing

By John Huber


Warren Buffett said there are just two rules of investing: #1-Don’t Lose Money; #2-Don’t forget rule #1.

That’s a tongue in cheek oft used phrase, but worth remembering at all times. But it begs the question: how exactly do you “not lose money”?

One thing to do is create a checklist… this is something that I heard Mohnish Pabrai discuss a couple years ago and I've recently implemented this in my own process, which seems to make the decision making process more efficient, allowing me to discard ideas more quickly. Sometime in the next week or so I’ll post the checklist I use currently. It’s nothing special-just basic common sense factors, but it does help.

3 Areas of Risk

My checklist is guided by three general categories of risk. I think many other value investors use these basic categories, and I think I first read them in something that James Montier wrote, but I'm not sure. But in any event, I've always found it helpful to remember that risk comes from these three areas. Many things can cause businesses to deteriorate or stock prices to fall leading to permanent loss of capital, but they all stem from at least one of these three categories:
  1. Valuation Risk
  2. Leverage Risk
  3. Business Risk

1. Valuation Risk


Valuation risk is usually the easiest to quickly identify. You might have the opportunity to invest in a great business that produce high returns on capital with extremely attractive prospects for future growth. This business might produce these returns while employing modest debt, or maybe even little to no debt. But in this case, you might have to pay 30 or 40 times current earnings to buy the business.

Coke was this type of situation in 1998. Microsoft was this type of business in 2000. There are countless of other examples. Investors who bought shares at that time saw their business continue to produce high returns on invested capital. Their businesses continued to grow sales, generate free cash flow, and increased earnings and shareholder net worth year after year. But the stock price went nowhere or even went down.

Amazon is one such example currently. There are even some value investors (Tom Gayner) who have purchase shares. These guys are smarter than I am, and I’m smart enough to know that Amazon is a great business, but I can’t get comfortable with paying 100 times free cash flow for the opportunity to own what might turn out to be much more cash flow later. A lot of things have to go right for that investment to work out in the long term.

To eliminate valuation risk, just simple buy stocks with low multiples to earnings or assets, and make sure the earnings are normalized.

2. Leverage Risk

Leverage risk can come in a variety of different areas, but a couple simple things can be done to ensure you are not taking on leverage risk with the investment you are about to make. This comes right from Ben Graham and Walter Schloss. Check the debt to equity ratio. Try to find companies that “own more than they owe” as Graham said. In most industries, I try to look for debt to equity ratios under .50.

The other thing to quickly check is the current ratio. This is the ratio of current assets to current liabilities. It basically provides a quick measure of the liquidity that the business has. Look for current ratios above 1, preferably higher than that. This means that a company’s current assets (cash, inventory, receivables, etc…) are sufficient to cover all short term liabilities including debt that is currently due. Note that some established businesses like WMT can operate with a current ratio less than one for reasons we’ll discuss another time, but understand these businesses are the exceptions, and not the rule.

Schloss said: “Debt causes problems.” The easiest way to prevent leverage risk is to look for companies with little to no debt. If they have debt, make sure they have assets to support that debt and cash flow to pay the interest payments.

3. Business Risk


While it’s fairly easy to determine if you’re taking on valuation or leverage risk, business risk is much more difficult to figure out. This category includes all of the risks that come from the general business, and it includes macro factors that could impact the business. In 2007, you were taking on leverage risk by investing in financials. You were taking on business risk by investing in housing stocks. These stocks were decimated because of macro factors that caused sales to plummet and losses to occur. It was hard to predict the financial crisis, but one simple question to ask is: Are these earnings “normal” earnings or are they “peak” earnings? You can get a clue by simply looking at 10 or 15 year history on Value Line.

The ability to prevent (or limit) business risk has a lot to do with your ability to understand the business. This is why Buffett is so good- he can quickly identify business risk, and avoid all situations where he’s not comfortable with the long term economics of the business. This style of investing provides a huge margin of safety for him because he can concentrate his investments in businesses within his circle of competence that carry very little business risk.

To find out if you’re taking on business risk, go to GuruFocus, Morningstar, or Value Line and look up the 10 year financial history of the stock. I first like to look at sales growth. If sales are declining steadily, you might have a “melting ice cube” that is operating in a dying industry. It doesn't mean you should eliminate the opportunity, but it is a sign you might be taking on business risk. You can also look for things like returns on capital and margins (are they deteriorating? inconsistent?). If margins and returns are stable it's a great sign. If not, there might be business risk involved.

One of my favourite things to look at is book value per share. Just like an individual person, if a company is growing its net worth over time, they are doing something right. If not, they might be doing something wrong. Every company that went bankrupt because of something other than leverage had book value deterioration at some point.

You can also check things like F Scores and Z Scores, but I prefer to simply glance at the 10 year financials.

To Sum it Up

All risk factors in investing can be traced to three main categories: Valuation Risk, Leverage Risk, and Business Risk. It’s fairly easy to figure out the first two. The third one takes more analysis and subjectivity. But if you eliminate the first two, and stay adequately diversified, you’ll dramatically increase your overall portfolio margin of safety and company specific risk will not hurt you. This is the philosophy of Graham, Schloss, and Greenblatt’s magic formula. It’s the philosophy of the insurance underwriting business.

If you have exceptional investment skills, you can concentrate your portfolio and go for higher returns. There are many ways to approach investing, but it helps to keep these three risk factors in mind at all times.

Keep in mind this post is simply an overview of some simple things to check to determine if you might be taking on risk. If you are concentrating your portfolio, much deeper analysis is required. But these three things provide a great foundation to build a checklist on if that is something that would help your investing.
Source: http://basehitinvesting.com/

Quote for the day

“If I want to be the best, I have to take risks others would avoid, always optimizing the learning potential of the moment and turning adversity to my advantage.” - Josh Waitzkin

Monday, 21 March 2016

Colombo Stock Exchange Trade Summary 21-Mar-2016

Quote for the day

“Wall Street is a tough teacher but also a good teacher. If you have any weakness — arrogance, laziness, stinginess, cowardice, procrastination — the market will zero in on that weakness and make you pay dearly.” - Richard Russell

Sunday, 20 March 2016

Quote for the day

“I think investment psychology is by far the most important element, followed by risk control, with the least important consideration being the question of where you buy and sell.” - Tom Basso

The 5 Pillars of Financial Health

By Mark Mikhael

Getting on your feet financially isn't rocket science. It's simple, but it requires a proactive and persevering mindset. Here are five principles that apply to every person on the planet when it comes to their financial health. I call it the BISEED and you'll see why.


1. Budget

The first step to taking charge of your finances is understanding where your money is coming from and where it's going. Once you've painted this financial landscape of your situation, you'll be ready to strategically move forward, get out of debt, and go further. The second step of budgeting, has to do with deciding what's a priority, how you can spend less on expenses, and then plan and project your short and mid-term financial situation. There's nothing new here. But then again, most people get budgeting right and then just stop. That’s a financially fatal mistake!

2. Invest

Your budget may not look great. Money-sucking-black-holes (personal loans!), high mortgages and lots of unexpected expenses makes you wonder, “How in the world am I ever going to get out of this!?” Glad you asked: make your money work for you. This is also how you break free from the mentality that money buys you things. Money's power isn't in how much it can buy—and really, it can never buy the most important things of life; love, joy and health—but money's power rests in it’s ability to be multiplied. That’s what investing is: money multiplying.

How do you invest then? You first invest by giving because that breaks the powerful hold of money on you. And then, wherever you are, whatever the economic situation and whatever your budget—invest in any of the millions of ways you can.

Now, most people just jump in the water without knowing how to swim. Why traumatize yourself? Before you invest, spend time—days, weeks, even months—learning about investing and exploring opportunities that come your way.

3. Save

But never for the long term! Saving cash in an account will always generate a loss—we're talking years here. But saving is an excellent strategy, not to build wealth, but to reach specific, short and mid-term goals. Saving is also good to smooth out the rough edges of your monthly and yearly budgeting cycle, as life happens and that means many unexpected expenses arise.

4. Entrepreneurial Endeavours (EEs)

A huge lie many people swallow is the belief that they're not cut out to start or run a business. They come up with all sorts of excuses to convince themselves this, but the truth is, it's all about what you are willing to do and learn. Being an entrepreneur is different from being an investor, because you are doing the work that you love, preferably, to earn money. Many times people jump into EEs because they have no other choice, but why wait till the pressure builds like that? (Speaking of which, I highly recommend the great movie Joy!) And why deny yourself the personal rewards of running a business? There are a virtually infinite number of ways you can start engaging in EEs. Whether you start something on the side or even grow further to the point where you quit your day job, dream big, and enjoy the journey!

5. Debt

Debt is last because if you focus on debt, it's bound to bring you down, down, down. So before you drown, face your dragons head on. Debt is just a number, it's not who you are. Speaking of dragons, why are you in debt? Because you spend more than you earn. So, the answer is easy, right? Spend less! Not really. Go out there and invest and make business. You're most powerful weapon is your mind, so exercise and nurture it to grow financially. That said, the real way to get out of debt is to both increase your income (investing and EE's or even getting a better job) AND spending less.

BISEED. Buy Seed. That's what money is. It's a seed, and like the seeds you sow, when handled correctly, money will multiply.

Here's to your bright financial future! Cheers.

Source: http://www.lifehack.org/

Saturday, 19 March 2016

57 Easy Ways to Be Happier and More Successful

A collection of guidelines to keep you focused, productive, and satisfied at work.

By Geoffrey James

I've already posted most of the advice below but scattered among five or six posts. I thought it would be useful to collect all of my happiness and success rules in a single place. Enjoy!


1. Assume people have good intentions.


Since you can't read minds, you don't really know the "why" behind the "what" that people do. Imputing evil motives to other people's weird behaviors adds extra misery to life, while assuming good intentions leaves you open to reconciliation.

2. Avoid using negative words.

Stop using negative phrases...such as "I can't," "It's impossible," or "This won't work." Stop using profanity, too. What comes out of your mouth programs your mind. When you talk trash, you're transforming your brain into trash.

3. Avoid spending time with stressed-out people.


You may not realize it, but your physiology is programmed to mirror the physiology of those around you. In other words, you can "catch" stress from other people. So although it may not be possible to avoid stressed people all the time, avoid them as far as possible.

4. Begin each day with expectation.

If there's any big truth about life, it's that it usually lives up to (or down to) your expectations. Therefore, when you rise from bed, make your first thought be, "Something wonderful is going to happen today." Guess what? You're probably right.

Quote for the day

"Things don't happen to us. They happen for us." - Michael Hyatt

Friday, 18 March 2016

Thursday, 17 March 2016

Monday, 14 March 2016

Colombo Stock Exchange Trade Summary 14-Mar-2016

Quote for the day

“A great trader is like a great athlete. You have to have natural skills, but you have to train yourself how to use them.” - Marty Schwartz

Sunday, 13 March 2016

What does it take to become successful?

By Tyrone Charles Solee


What does it take to become successful? Success has a lot of meaning to each of us. You can achieve success financially, success emotionally, success spiritually, etc.

In a recent addition to my learnings to become a successful entrepreneur and investor, I’ve learned about John Wooden’s Pyramid of Success.

John Wooden is a retired American basketball coach. He is a member of the Basketball Hall of Fame as both a player (class of 1961) and as a coach (class of 1973). He has authored a lecture and a book about the Pyramid of Success. The Pyramid of Success consists different philosophical building blocks for winning at basketball which can then be applied to become successful in life.

According to John Wooden’s Pyramid of Success, “Success” is at the apex of the pyramid.

“Success is peace of mind which is a direct result of knowing you did your best to become the best that you are capable of becoming,” says John Wooden

In order to achieve this success, one must follow 15 traits to become successful. These traits are so-called building blocks of success. Let’s discuss each of these traits starting from the bottom to the top.

Industriousness. John Wooden says: “Hardwork results in worthwhile accomplishments.” True enough, I think success is 90% perspiration and 10% luck. You need to act in order to succeed.

Honesty. John Wooden says: “Truthfulness should always prevail. Tell it like it is and not how you wish it to be.” Honesty is the best policy and the truth will set you free.

Friendship and loyalty. John Wooden says: “Friendship comes from mutual esteem, respect, and devotion. A sincere liking for all.” No man is an island. In order to achieve success, you must mingle with successful people. Find mentors and learn from them.

Cooperation. John Wooden says: “Cooperation with all levels of your co-workers is essential. Help others and see the other side”.” Two heads are always better than one. No once can be successful in its own. It is always a team effort. Learn to cooperate by sharing your knowledge and gain some knowledge as well from other people.

Enthusiasm. John Wooden says: “Your heart must be in your work. Stimulate others.” You must have the passion in what you do for if you have that passion and you keep it burning, your chances of achieving success in reaching those goals are high.

Self-Control. John Wooden says: “Keep emotions under control. Delicate adjustment between mind and body is needed. Keep judgment and common sense.” As the famous self-motivation coach Anthony Robbins said that our emotions are one of the keys to our health. Your emotions are somehow connected to your health and success. If you are a happy person, you will attract a lot of positive things. Positive things are always associated with success. Same thing goes for negative emotions. If you are always angry, then chances are you will attract negative emotions too.

Alertness. John Wooden says: “Ask rigorous questions. Be skilled in scientific reasoning.” Curiousity leads to knowledge.

Initiative. John Wooden says: “Summon the courage to make a decision and take action.” Sometimes, you need to take the initiative to take the proper actions without being told to do. Be proactive!

Intentness. John Wooden says: “Harness your ability to resist temptation and stay with your course. Concentrate on your objective and be determined to reach your goal.” If there’s a will, there’s a way. Aim high and stay focus in achieving your goals. It all boils down on how strong your will power is.

Condition. John Wooden says: “Mental, moral, physical and diet must be considered. Moderation must be practiced. Dissipation must be eliminated.” Everything that is excess and deficient is detrimental. Moderation is the key.

Skill. John Wooden says: “Skills are knowledge of and the ability to properly execute the fundamentals. Be prepared. Cover every details.” Skill must be developed. Constant education is the key in improving one’s skills.

Team Spirit. John Wooden says: “You must have an eagerness to sacrifice personal interests or glory for the welfare of all. The team comes first.” Sometimes, we need to set aside our personal concerns for the higher benefit of most people. Successful leaders are servants to their people.

Poise. John Wooden says: “Just be yourself. Be at ease in any situation. Never fight yourself.” Be true to yourself. Be comfortable in any situation. Don’t be pretentious.

Confidence. John Wooden says: “You should respect without fear. Be confident, not cocky. Confidence may come from faith in yourself in knowing that you are prepared.” Having faith in one’s self is the key. To have faith is to be prepared. You cannot win a war unless you are prepared. Same thing for success. Success comes with thorough preparation and planning.

Competitive Greatness. John Wooden says: “When the going gets tough, the tough get going. Be at your best when your best is needed. Real love of a hard battle.” Ultimately, success relies in yourself. It’s you who will make yourself successful and not others. Develop that attitude to be the best when your best is needed.

How about you, what’s your idea of success? What does it take for you to become successful?
Source: www.millionaireacts.com/

Quote for the day

“Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading.” - Mark Weinstein

Saturday, 12 March 2016

10 Keys to Being A Trader, Not A Gambler

There is a big difference between a trader and a gambler.

Many people think they are traders when they are really just gamblers that could get better odds in Las Vegas betting on the roulette wheel than what they get in the financial markets. The difference between a trader and a gambler is similar to the difference between a casino and a gambler. The casino paradigm for traders was introduced in “Trade like a Casino” by Richard Weissman and this thinking process can really help traders become profitable.



THE EDGE

Why would the casinos in Las Vegas be so big and luxurious and gamblers mostly just be broke? Casinos have a statistical edge in their games of chance against the players of those games. Time is the friend of the casino and the enemy of the gambler. The more someone tries to beat the casino the more their chances of losing in their attempt. The casino also has table limits so a gambler cannot keep doubling down to eventually win there is a ceiling to the bet size the casino is willing to take the risk on. The casino does not risk its business and profitability on any one trade it has table limits to make sure no one win makes any difference in its profit and loss statement. The casino allows its edge to play out over a huge amount of trades so the odds come back in its favor over a large sample size of bets.

Another huge edge that the casino has is that it has no emotions; the casino does not care about any player and whether that player is winning or losing. In contrast the gambler is filled with emotions wanting to win back all their losses so they trade with the odds against them and usually trade bigger and bigger wanting that one win to get them back to even when it usually just takes them into bigger and bigger losses. Another plague of the gambler is that even after winning streaks they do not take their profits and leave with their money, they stick around and lose it all either through getting arrogant and trading too big or losing their discipline in their strategy that was working for awhile. Gamblers are generally doomed to be losers.

Ten Ways to Be a Trader NOT a Gambler
  1. Trade based on the probabilities NOT the potential profits.
  2. Trade small position sizes based on your account NEVER put your whole account at risk of ruin.
  3. Trade a plan NOT emotions.
  4. Always enter a trade with an edge that can be defined DO NOT trade with entries that are only opinions.
  5. Trade based on quantifiable facts NOT opinions.
  6. Trade after extensive research on what works and what does not. Don’t trade in ignorance.
  7. Trade with the correct position sizing since risk management is your number one priority and profits are secondary concern.
  8. Trade in a way that eliminates any chance of financial ruin NOT to get rich quick.
  9. Trade with discipline and focus DO NOT change the way you trade suddenly due to winning or losing streaks.
  10. Trade in the present moment and DO NOT get biased due to old wins or losses.

The question is what side of the market are you operating on? Are you with the majority who gamble and lose their money or are you with the minority acting as the casino picking up the profits that the gamblers consistently lose?

Source: www.newtraderu.com

Quote for the days

“The tendency on the part of investors toward gullibility rather than scepticism is an important reason styles go to extremes.” - Howard Marks

Friday, 11 March 2016

Colombo Stock Exchange Trade Summary 11-Mar-2016

Quote for the day

"I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you." - Charlie Munger

Thursday, 10 March 2016

Colombo Stock Exchange Trade Summary 10-Mar-2016

Quote for the day

“A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world.” - Seth Klarman

Wednesday, 9 March 2016

Colombo Stock Exchange Trade Summary 09-Mar-2016

Quote for the day

“Economic theory needs to be fundamentally reconsidered. There is an element of uncertainty in economic processes that has been largely left unaccounted for... We must take a radically different view of the role that thinking plays in shaping events.” - George Soros

Monday, 7 March 2016

Five Bear Market Mistakes

By  Neil Faulkner

It's easy to forget the mistakes we make. That's a mistake in itself. Here are five traps to avoid during a bear market.

1. Focusing on our short-term performance
One Fool reader once commented that a long-term, buy-and-hold strategy is a short-term strategy gone wrong. Sometimes that's true, but I think it's fair to say that most investors buy into the market with the aim of making money over years rather than months or weeks.

Indeed, over the next few decades, we're all going to be buying a lot of shares, aren't we? That's why we should be content with prices being low. Remember, it's at the end of the investment life that you get the greatest profits from compounding.

For the same reason, we shouldn't get overly concerned during bear markets. Prices do fall from time to time. Perhaps we'll have some extra cash in that period to invest further in quality shares. Regular investors should like bear markets and shouldn't be too bothered about solid shares under-performing for a while.

2. Becoming enduringly bearish
Who knows when 'the right time' to invest is? Economic indicators are wrong at least as often as they are right, and as mysterious as the Delphic Oracle's mutterings.

Let's say you disagree and want to time the market a little. If it's a rising market then things can quickly look over-priced. Only a madman would get in, wouldn't he? In a falling market, prices could just keep sinking, so you'd be crazy to buy something that's decreasing in value. But now we've reached the bottom and it's climbing again. Or is it? Is this a fake bottom, or a 'dead-cat bounce'? Or a dead-cat's fake bottom? Negativity is insidious, and a bit rude.

If you find yourself constantly negative, you'll worry so much about the right time to invest that you'll miss it by a great margin. The stock market, on average, rises more often than it falls and outperforms other investments (or at least it has historically). On that basis, the best time to invest is always now (or more precisely, as and when you have spare money to invest).

There are extremely rare times when all indicators are overwhelmingly in agreement (including the Delphic Oracle), but in general I don't think we shouldn't worry too much about exactly when we get into the market. It's far more important to ensure you spend most of your time invested and you put in as much money as you can reasonably afford.

3. Believing financial journalists are experts
I'm shooting myself and my colleagues in the feet for you. Hope you appreciate it. Thing is, what sells newspapers is what's happening now, not what's likely to happen to the stock market in 30 years. Papers love to be negative, so in a bear market they're extremely happy.

Journalists are not hired for their moderate views or long-term commitment to improving your wealth. They're hired to sell papers. Anyone who just buys shares and holds them forever isn't going to be all that interested in reading the financial pages on a regular basis, and so journalists don't write for this audience. If they do, the editor deletes the clause 'but...' from the phrase: 'A top economist predicts market crash, but...'


The most successful investors do their own research; they don't rely on papers to make buying or selling decisions.

4. Not spending enough time on your investments
Before you get addicted to buying and selling shares, it's tempting for beginners to just get buying, especially if their friend, mother or local pub landlord says that he's buying this or that share because he can't lose. No one should leap into stock-picking like that.

If you want to invest in a hurry, read up about index trackers and ETFs. Read everything you can on them. Take a look at what people are saying about them on our discussion boards and ask your questions there. It should take you just a few hours a day for a week or two to get comfortable with the idea of them. That's not much effort to lay the foundations of your future financial security.

Once your money is invested relatively safely, you can then take the time to truly learn what on Earth it is you're getting into when you're looking at individual shares. May I suggest you be as cynical about them as you like? Keep digging to find out what's wrong with the company and only then, if you find nothing serious, can you buy. In other words, concentrate on what might go wrong with a share before you consider what might go right. Your wallet will thank you for it.

5. Spending too long on your investments
On the other side, once you've got used to investing it can begin to get you a little too excited. Lots of people check their shares every morning or several times a day.

You know your friend who goes to the gym, and working out is all he talks about? Or how much your other friend talks about just clothes and fashion? You know how boring that is? You know how much you wish they'd just get a life? Well then.

Keep a balance. By not over-doing it, it'll also help you resist the costly temptation to over-trade. But that's going into a sixth mistake, and I just promised you five.
Source: www.fool.co.uk

Quote for the day

"Good luck is what happens when preparation meets opportunity, bad luck is what happens when lack of preparation meets a challenge." - Paul Krugman

Sunday, 6 March 2016

Behavioural mistakes we make while investing, and how to avoid them

Behavioural mistakes we make while investing, and how to avoid them

Most of us understand the simple truths of investing. Haven't we been told not to hold on to losing positions for too long, or told not to panic and sell when the market corrects 10% in a single day? Although the basic rules of investing are simple enough to understand, following them can be quite tough. In the words of Warren Buffet, “Investing is simple, but not easy.”

So why is investing in equity so difficult?
An investor's worst enemy is himself. The behavioural skills needed to invest successfully are often in direct conflict with how we respond to familiar situations. If our house is on fire, we listen to our intuition and run for safety. This helps us survive. However, in the case of investment decisions, this behaviour can land us in trouble. The moment we see signs of panic in the stock market, we run to sell all our stocks; when we see euphoria, we jump into the market. We tend to behave irrationally and in a biased manner in many investment situations. Your long-term investment success is determined by your ability to control your ‘inner demons’ and sidestep ‘psychological traps’.

The good news is that human behaviour is irrational in a predictive manner, as examined by Professor Dan Ariely in his highly acclaimed book Predictably Irrational.

Once we are internally alert and are able to recognize these ‘inner demons’, we can develop approaches to tackle them. Thoughtful investors can leverage this predictable irrationality of human beings by not getting swayed by the noise and making rational decisions, thereby taking advantage of others’ behavioural biases.

One such inner demon is ‘overconfidence’. Many a times, we tend to overrate our ability, knowledge and skill. Watching 24-hour news channels and listening to ‘experts’, we sometimes tend to believe that we have become experts and take investment decisions that are not thought through. We think we can predict and time every up and down of daily price movements and invest accordingly. Overconfidence can lead to excessive trading and poor investment decisions. To be a successful investor, one needs to follow a zero-based approach towards decision-making, and be a bit cautious and sceptical. In investment decisions, it pays to be humble rather than being overconfident about past successes.

Another common demon we need to fight is ‘anchoring’. While making a decision, we often tend to give disproportionate weight to the first information we receive. As a result, the initial data colours our subsequent analysis. One of the most common anchors is a past event or trend. How many times have we concluded that a stock is cheap because it is at a 52-week low? Even if fundamental prospects justify a change in value, we find it difficult to erase historical prices from our memory.

Another trap we frequently encounter is ‘mental accounting’, i.e. treating money differently depending on where it is kept, where it comes from, or how it is spent. Assume you buy a stock at Rs. 100 per share that surges to Rs. 200 in one month. Many investors divide the value of the stock into two distinct parts, the initial investment and the profit. They tend to treat each part differently – the original investment with caution and the profit portion with significantly less care. Haven’t you heard of people who choose an overtly conservative investment strategy for inherited wealth as it is “too sacred”? We need to treat every rupee equally, in order to avoid making irrational decisions. It does not matter whether you have received a sum of money by means of hard work or inheritance; once you have received the money, you must treat each penny of it equally, and plan your course of action accordingly.

‘Loss aversion’ is another behavioural bias that we frequently exhibit. Research has established that a loss has about two-and-a-half times the psychological impact of a gain the same size. People feel a lot worse about losses than they feel good about a gain of a similar magnitude. Since it is difficult for investors to accept their losses, they tend to sell their winners too soon and hold on to their losers too long. This is because they don’t want to take a loss on a stock. They want to at least recover their investment, despite the fact that the original rationale for purchasing the stock no longer appears valid.

Another important psychological trap we need to avoid is ‘herding’. People tend to follow the actions of a larger group, independent of their own knowledge. This large-scale social imitation can lead to significant gaps between actual value and price. The herd-like behaviour explains several booms and busts that we have witnessed in the past. These collective behaviour phenomena can create profitable opportunities for individual stocks. But taking advantage of collective irrationality, either for a specific stock or for the market as a whole, is difficult. Since most of us have a strong urge to be part of the crowd, acting independently is not an easy feat. But if we’re able to control this behaviour, it can result in significant investment gain for us. Warren Buffet sums this up by saying: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”. It requires significant control over one’s emotions to practice in real life.

There are many more demons that we need to tame. For example: Allowing emotions like anger or fear to override reason, becoming paralyzed by information overload, the tendency to seek only that information that confirms our opinions or decisions. They draw from our tendency to behave irrationally and use mental shortcuts while taking investment decisions.

The need of the hour: A disciplined approach towards investing

So how do we fight these inner demons and sidestep these psychological traps? The only uncomplicated way for most of us is to follow a disciplined approach towards investing. 


Some ways to bring about investment discipline are as follows:

(1) Use a ‘check-list’ approach towards entry / exit of stocks. Keep it short and reasonable.

(2) Do your due diligence before investing. Keep a margin of safety while investing; never invest to lose.

(3) Adopt a ‘buy and hold’ strategy with periodic reviews. The less frequently you track the market and check your portfolio, the less likely you would be to react emotionally to the natural ups and downs of the stock market. For most investors, checking the portfolio in a structured manner (once in three to six months) is sufficient.

(4) Be more thoughtful while taking long-term investment decisions. Losing one day’s return will not matter if you want to keep the stock for 10 years. When you see signs of panic or euphoria, the best advice would be to wait for another day. If the investment is meaningful from a long-term perspective, the opportunity will continue to remain a good one, even in the future.

(5) Have appropriate asset allocation, and rebalance your portfolio periodically.

(6) Invest at regular intervals.

(7) Be patient. Do not focus on instant returns, and do not change your investment decisions based on short-term returns.

(8) Overall, be humble, and learn from your mistakes. When you succeed, evaluate which of your actions contributed to the success, and which ones did not. Don’t claim the credit for successes that have occurred by chance. Avoid rationalisation when you fail. Don’t exaggerate the role of bad luck in your failures.

Summing up…
Research has shown that behavioural mistakes can reduce the return on investments by 10% to as much as 75%. So what do you need to avoid this? It can be summarized in one word: discipline. One need not always focus on becoming too smart. Instead, if one can focus on avoiding silly behavioural mistakes, one could become a successful long-term investor. Warren Buffet once said, “You only have to do a very few things right in your life, so long as you don’t do too many things wrong”. If we can avoid making big mistakes, the right decisions would take care of themselves. A disciplined approach towards investing allows you to do just that.

Like the central theme of the Mahabharata, the battle for investment success is about systematic adherence to dharma – financial dharma. As stated in the epic, “The road to heaven is paved with bad intentions.” Our journey towards financial heaven is filled with such inner demons. Our ability to identify and tame the ‘inner demons’ is essential for long-term superior returns. Just as a lot of mental discipline and willingness is required to forego short-term pleasures to wake up every day and jog for good health, a similar discipline and willpower is required to follow the simple but powerful mantras of enhancing long-term financial health.
Source: http://www.itsallaboutmoney.com/

Quote for the day

“In trading, you can't hide your failures. Your equity provides a daily reflection of your performance. The trader who tries to blame his losses on external events will never learn from his mistakes.” - Victor Sperandeo

Saturday, 5 March 2016

21 Ways to achieve Wealth & Success

Quote for the day

“Being prepared, on a few occasions in a lifetime, to act promptly in scale in doing some simple and logical thing will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favourable, using resources available as a result of prudence and patience in the past.” - Charlie Munger

Friday, 4 March 2016

Colombo Stock Exchange Trade Summary 04-Mar-2016

Quote for the day

“Financial peace isn't the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” – Dave Ramsey

Thursday, 3 March 2016

Colombo Stock Exchange Trade Summary 03-Mar-2016

Quote for the day

“One of the very nice things about investing in the stock market is that you learn about all different aspects of the economy. It’s your window into a very large world” - Ron Chernow

Wednesday, 2 March 2016