“Conventional wisdom interprets the stock market as reacting to new era theories. In fact, it appears that the stock market often creates new era theories, as reporters scramble to justify stock market price moves.”- Robert J. Shiller
Monday, 30 September 2013
30-Sep-2013 CSE Trade Summary
Crossings - 30/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New Low on 30/09/2013
Saturday, 28 September 2013
5 Ways To Lose Money On Shares
...and some help to overcome them.
Economies are in a mess. Markets are in chaos. So whether you're bullish or bearish, it's all the more important to keep a cool head and make carefully considered, rational decisions.
The fact is, you probably don't. We all like to think that we make decisions based on logic, but emotion and psychology inevitably affect our thought processes. There's a large body of evidence from behavioral finance studies that indicate both private and professional investors are prone to psychological biases in their decision making. That leads to suboptimal performance at best, and disaster at worst.
I've listed the five most dangerous biases below. Just being aware of these biases can improve your investment decision-making, but I've also suggested some practical steps to reduce the risk of succumbing to them.
1. Availability Bias
Availability bias is the natural tendency to give undue weight to more vivid or prominent facts. It's why we fear plane crashes more than car crashes, even though the latter are statistically more of a risk. Its kissing cousin is recency bias, the tendency to give more weight to facts most recently acquired.
Of course, the market price should reflect all the information about a share as interpreted by all investors, so this price does have a real meaning. But anchoring is dangerous when the price moves and your thinking remains stuck to what the share was once worth.
4. Overconfidence
You're not overconfident, are you? Me neither. Modesty could be my middle name -- except it sounds a trifle feminine. But I guess I'm not alone here in striving to obtain better-than-average returns. The problem is, too many of us think we can be above-average for us all to be right. A 2006 study by James Montier found that three-quarters of fund managers believed they achieved above-average returns. Montier's paper has a fascinating self-test to reveal your own cognitive biases.
So overconfidence is a trait we all have to be wary of. It manifests itself as being over-optimistic: seeing the potential upside more than the downside risk. And it can lead to over-trading.
5. Loss Aversion
Psychological experiments have shown that people are more strongly motivated to avoid losses than to make gains. In investing, it gives rise to the disposition effect, which we have probably all felt: investors are generally much more reluctant to sell shares at a loss than at a profit.
Logically and dispassionately, it should not make a difference to the decision to sell when the price is either above or below what we paid. In classical economics, losses are sunk costs. But there are a couple of exceptions to that rule. Crystallising profits and losses can have a tax effect. And there can be good reasons to sell winners, for example to maintain the balance of a portfolio or if you anticipate the good times will soon be over.
Four-Point Plan
Being aware of cognitive biases can help you avoid being over-influenced by them. Otherwise, taking a disciplined approach to investment is the best antidote.
I'm less disciplined than I meant to be, and that's less than I ought to be. This is real life.
Economies are in a mess. Markets are in chaos. So whether you're bullish or bearish, it's all the more important to keep a cool head and make carefully considered, rational decisions.
The fact is, you probably don't. We all like to think that we make decisions based on logic, but emotion and psychology inevitably affect our thought processes. There's a large body of evidence from behavioral finance studies that indicate both private and professional investors are prone to psychological biases in their decision making. That leads to suboptimal performance at best, and disaster at worst.
I've listed the five most dangerous biases below. Just being aware of these biases can improve your investment decision-making, but I've also suggested some practical steps to reduce the risk of succumbing to them.
1. Availability Bias
Availability bias is the natural tendency to give undue weight to more vivid or prominent facts. It's why we fear plane crashes more than car crashes, even though the latter are statistically more of a risk. Its kissing cousin is recency bias, the tendency to give more weight to facts most recently acquired.
In investment, availability bias frequently shows itself as an overreaction to news. It's bad to buy a share straight after reading a tip or a relevant piece of news. Instead, it's good to thoroughly research a share and reach a considered view, then to buy as the market -- itself showing availability bias -- overreacts to a piece of bad news.
2. Confirmation Bias
We don't just give more weight to recent facts, we also give more weight to facts that support our preconceived opinions. That's confirmation bias. While this psychological tendency no doubt helps politicians to sleep at night, it wreaks havoc in investment, where reaching the right conclusion matters more than how well you articulate your case.
The value of a share is a delicate balance between lots of positive and negative factors, and the investor has to judge what weight to put on each line. To help address this bias, think hard about the negative points, and be your own Devil's advocate. I tried this recently when I asked myself: "Just what's wrong with Aviva (LSE: AV)?"
3. Anchoring
Anchoring is the trait of being attached to a particular piece of information, and then interpreting other information to fit with it. In investing, the most obvious example is the market price: when we value companies we more often rationalise the market price then determine value from first principles.
2. Confirmation Bias
We don't just give more weight to recent facts, we also give more weight to facts that support our preconceived opinions. That's confirmation bias. While this psychological tendency no doubt helps politicians to sleep at night, it wreaks havoc in investment, where reaching the right conclusion matters more than how well you articulate your case.
The value of a share is a delicate balance between lots of positive and negative factors, and the investor has to judge what weight to put on each line. To help address this bias, think hard about the negative points, and be your own Devil's advocate. I tried this recently when I asked myself: "Just what's wrong with Aviva (LSE: AV)?"
3. Anchoring
Anchoring is the trait of being attached to a particular piece of information, and then interpreting other information to fit with it. In investing, the most obvious example is the market price: when we value companies we more often rationalise the market price then determine value from first principles.
Of course, the market price should reflect all the information about a share as interpreted by all investors, so this price does have a real meaning. But anchoring is dangerous when the price moves and your thinking remains stuck to what the share was once worth.
4. Overconfidence
You're not overconfident, are you? Me neither. Modesty could be my middle name -- except it sounds a trifle feminine. But I guess I'm not alone here in striving to obtain better-than-average returns. The problem is, too many of us think we can be above-average for us all to be right. A 2006 study by James Montier found that three-quarters of fund managers believed they achieved above-average returns. Montier's paper has a fascinating self-test to reveal your own cognitive biases.
So overconfidence is a trait we all have to be wary of. It manifests itself as being over-optimistic: seeing the potential upside more than the downside risk. And it can lead to over-trading.
5. Loss Aversion
Psychological experiments have shown that people are more strongly motivated to avoid losses than to make gains. In investing, it gives rise to the disposition effect, which we have probably all felt: investors are generally much more reluctant to sell shares at a loss than at a profit.
Logically and dispassionately, it should not make a difference to the decision to sell when the price is either above or below what we paid. In classical economics, losses are sunk costs. But there are a couple of exceptions to that rule. Crystallising profits and losses can have a tax effect. And there can be good reasons to sell winners, for example to maintain the balance of a portfolio or if you anticipate the good times will soon be over.
Four-Point Plan
Being aware of cognitive biases can help you avoid being over-influenced by them. Otherwise, taking a disciplined approach to investment is the best antidote.
I'm less disciplined than I meant to be, and that's less than I ought to be. This is real life.
But I have a four-point plan to make myself act on cold logic:
Slow things down by always putting shares on a watch list before deciding to buy;
Go through a checklist to force yourself to think about all the important factors;
Write down a brief investment thesis, with positive and negative points, and;
Have a stop-loss price.
Slow things down by always putting shares on a watch list before deciding to buy;
Go through a checklist to force yourself to think about all the important factors;
Write down a brief investment thesis, with positive and negative points, and;
Have a stop-loss price.
Even if this doesn't automatically trigger a sale, it should force you to revisit your investment thesis.
By Tony Readinghttp://www.fool.co.uk
By Tony Readinghttp://www.fool.co.uk
Friday, 27 September 2013
Quote for the day
“Why do investment professionals get such poor marks? The main reason is that they are victims of their own methodology. By making a science out of an art, they are opting to be precisely wrong rather than generally correct.” - Bennett W. Goodspeed
27-Sep-2013 CSE Trade Summary
27/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New Low on 27/09/2013
Is it possible to predict movements in the stock market?
Pundits, Gurus and experts go to great lengths to try to either try to predict the stock market or they try to at least explain the stock markets with a myriad of theories. I try to read as much as I can and what I have found is there are more theories and explanations than ever preserved by the world wide web.
I thought it would be relevant to share some of my global thoughts on the stock market and why predicting the markets is a real waste of time.
1.Stock markets go up and stock markets go down. Why do they go up and down? Because the market is a place where buyers and sellers converge. When there are more buyers than sellers, the price increases. When there are more sellers than buyers, the price decreases. So what causes people to buy and sell? I believe it has more to do with emotion than logic. Because emotion is unpredictable, stock market movements will be unpredictable. It’s futile to try to predict where markets are going. They are designed to be unpredictable.
2.Spending an hour trying to predict the future movement of the stock market is an hour wasted in your life. There are so many better things to do with your time. Now, don’t confuse this with knowledge. I think it’s good to read and learn but don’t think you can predict the markets.
3.Markets are more volatile than ever. Mark Twain once said “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.” Markets are more volatile than ever simply because of more access to information and more resources to react to that information. Technology allows us to buy and sell as many times as we want, whenever we want while sitting on the toilet from the comforts of our own home.
4.There is no such thing as perfection when it comes to investing. Many times, I’ve said that investing is not about perfection but rather about process and probability. The key to success is to develop a process or a plan that attempts to increase your probability of being right more often than wrong (because you will be wrong sometimes) and enhances the probability of making money more often than losing money (because you will lose money from time to time).
5.Everything goes in cycles. The stock market just like everything else, runs on cycles. What goes up comes down and what goes down comes up. What goes up the most can come down the most and vice versa. After every bear comes a bull. After every bull comes a bear. After every correction comes a recovery.
Unfortunately for all of us, the stock market is unpredictable and uncontrollable. That’s exactly why it can be so frustrating for so many people. The market can also be a sea of opportunity to make money as long as you employ smart prudent investment strategies. Don’t get caught up in thinking the stock market can be your secret way to get from rags to riches. That kind of speculation is about as risky as the casino or lottery and we know the odds of winning at that game.
Some people will argue that if it’s too hot in the kitchen, then get out but also know the consequence of getting out . . . there’s not much for alternatives. Others seek safety within the market but I think it’s best to find safety outside the market.
Written by Jim Yih in Investing
http://retirehappy.ca
I thought it would be relevant to share some of my global thoughts on the stock market and why predicting the markets is a real waste of time.
1.Stock markets go up and stock markets go down. Why do they go up and down? Because the market is a place where buyers and sellers converge. When there are more buyers than sellers, the price increases. When there are more sellers than buyers, the price decreases. So what causes people to buy and sell? I believe it has more to do with emotion than logic. Because emotion is unpredictable, stock market movements will be unpredictable. It’s futile to try to predict where markets are going. They are designed to be unpredictable.
2.Spending an hour trying to predict the future movement of the stock market is an hour wasted in your life. There are so many better things to do with your time. Now, don’t confuse this with knowledge. I think it’s good to read and learn but don’t think you can predict the markets.
3.Markets are more volatile than ever. Mark Twain once said “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.” Markets are more volatile than ever simply because of more access to information and more resources to react to that information. Technology allows us to buy and sell as many times as we want, whenever we want while sitting on the toilet from the comforts of our own home.
4.There is no such thing as perfection when it comes to investing. Many times, I’ve said that investing is not about perfection but rather about process and probability. The key to success is to develop a process or a plan that attempts to increase your probability of being right more often than wrong (because you will be wrong sometimes) and enhances the probability of making money more often than losing money (because you will lose money from time to time).
5.Everything goes in cycles. The stock market just like everything else, runs on cycles. What goes up comes down and what goes down comes up. What goes up the most can come down the most and vice versa. After every bear comes a bull. After every bull comes a bear. After every correction comes a recovery.
Unfortunately for all of us, the stock market is unpredictable and uncontrollable. That’s exactly why it can be so frustrating for so many people. The market can also be a sea of opportunity to make money as long as you employ smart prudent investment strategies. Don’t get caught up in thinking the stock market can be your secret way to get from rags to riches. That kind of speculation is about as risky as the casino or lottery and we know the odds of winning at that game.
Some people will argue that if it’s too hot in the kitchen, then get out but also know the consequence of getting out . . . there’s not much for alternatives. Others seek safety within the market but I think it’s best to find safety outside the market.
Written by Jim Yih in Investing
http://retirehappy.ca
Thursday, 26 September 2013
Quote for the day
“You should expect the unexpected in this business; expect the extreme. Don't think in terms of boundaries that limit what the market might do.” - Richard Dennis
26-Sep-2013 CSE Trade Summary
Crossings - 26/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 26/09/2013
Wednesday, 25 September 2013
25-Sep-2013 CSE Trade Summary
Crossings - 25/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New Low on 25/09/2013
Stock market movements: A crucial factor to investment decisions or not?
Some days stock market goes up and some days stock market comes down. Some days it closes on green and some days it closes on red. Should all these stock market movements play a crucial role for an individual investor in making his investment decisions?
I have some money to invest.
If I see that market is coming down, then I have two choices to make. Either I can decide to invest today or not to invest. IF I HAVE INVESTED TODAY and the market go up tomorrow, then I will be happy because I have bought it at lower rate. Suppose if the market comes down further, then I will feel bad because if I could have delayed my investment by a day, then I could have bought it at much lower rate. IF I HAVE NOT INVESTED TODAY and the market goes up tomorrow, then I will be worried because I missed an opportunity to buy it at a lower rate. Suppose if the market comes down further, then I will be happy because I can buy it at a still lower rate.
Similarly, if I see the markets are going up, I can invest or postpone. If I invest and market comes down next day, if I postpone and the market goes up the next day?
The point I am trying to make here is by simply watching today ‘s market movement and making an investment decision will not help. One needs to forecast the movement of the next day. Not only next day, the next to next day, the next week, the next month and so on. Also by watching the market movements to make investment decision, we allow our emotions - fear and greed - to creep in. When emotions come into play, the possibility of making a wrong decision is more.
So what should we do? Divide and rule. Predicting the market is not possible. The market is out of our control and we can do anything about it. It is worthwhile to focus our efforts and energy on the things we can do something about. But what is in our control is the money which we are going to invest. We can do something here. We can choose to invest the money in a staggered manner.
What would be the correct practice? Studying only during exams or studying regularly? Exercising only when we become overweight or exercising regularly? Investing only when the market comes down or investing regularly? I need not tell you the answer because you all know it. By investing regularly our investment will be spread across the ups and downs of the market. Our investment cost will be averaged out. We will not become emotional and we will become a more disciplined investor in this process.
By Ramalingam.K, an MBA (Finance) and Certified Financial Planner
Article Source:http://www.caclubindia.com
I have some money to invest.
If I see that market is coming down, then I have two choices to make. Either I can decide to invest today or not to invest. IF I HAVE INVESTED TODAY and the market go up tomorrow, then I will be happy because I have bought it at lower rate. Suppose if the market comes down further, then I will feel bad because if I could have delayed my investment by a day, then I could have bought it at much lower rate. IF I HAVE NOT INVESTED TODAY and the market goes up tomorrow, then I will be worried because I missed an opportunity to buy it at a lower rate. Suppose if the market comes down further, then I will be happy because I can buy it at a still lower rate.
Similarly, if I see the markets are going up, I can invest or postpone. If I invest and market comes down next day, if I postpone and the market goes up the next day?
The point I am trying to make here is by simply watching today ‘s market movement and making an investment decision will not help. One needs to forecast the movement of the next day. Not only next day, the next to next day, the next week, the next month and so on. Also by watching the market movements to make investment decision, we allow our emotions - fear and greed - to creep in. When emotions come into play, the possibility of making a wrong decision is more.
So what should we do? Divide and rule. Predicting the market is not possible. The market is out of our control and we can do anything about it. It is worthwhile to focus our efforts and energy on the things we can do something about. But what is in our control is the money which we are going to invest. We can do something here. We can choose to invest the money in a staggered manner.
What would be the correct practice? Studying only during exams or studying regularly? Exercising only when we become overweight or exercising regularly? Investing only when the market comes down or investing regularly? I need not tell you the answer because you all know it. By investing regularly our investment will be spread across the ups and downs of the market. Our investment cost will be averaged out. We will not become emotional and we will become a more disciplined investor in this process.
By Ramalingam.K, an MBA (Finance) and Certified Financial Planner
Article Source:http://www.caclubindia.com
Tuesday, 24 September 2013
Quote for the day
“People don’t like having their preconceived notions jolted, and doubt and ambiguity are alien to the way most investors think.” - Jason Zweig
24-Sep-2013 CSE Trade Summary
Crossings - 24/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 24/09/2013
Monday, 23 September 2013
Quote for the day
"The people who excel in any field are people who realize that the moment is there to be seized—that there are opportunities at every turn. They are more alive to the moment."
- Charles Faulkner
- Charles Faulkner
23-Sep-2013 CSE Trade Summary
Crossings - 23/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 23/09/2013
Sunday, 22 September 2013
A crucial investing question: Do you know your time frame?
by
Do you suffer from time frame confusion?
That question came up recently when I was asked about a specific stock. Although we did not own that stock, I discussed why its sectors (health care and biotech) had been doing well in recent years — and would probably continue doing well. It has been part of our long-term view that these industries will thrive in the coming decades.
But this particular name had just run straight up, Apple-like, and I mentioned that in the short term, it might be due for an Apple-like pullback as well.
Subsequently, an investor asked, “You mentioned the stock was overbought and could pull back, so how does that square up with your long-term view that this stock and sector can do well?”
Short answer: It doesn’t.
Longer answer: Never confuse investing with trading. The short-term swings in prices are mostly noise; volatility is often a reflection of traders’ emotions. Longer-term price changes reflect earnings and valuation.
Hence, if you are saving for retirement, the fast in-and-out trading is irrelevant. Our clients’ investment profiles are typically looking out many years and decades. What a stock does over the next 30 days is essentially a trading question, and irrelevant to them.
Whenever you hear a discussion about the short-term swings in any given stock’s price, your immediate thought should be whether it matters to why you are investing. Consider what your time frame is and you will figure out what your answer should be. Indeed, much investor confusion and quite a few investor errors involve making the mistake of investing for one time frame and behaving in another.
Perhaps a few examples of shifting time frames might help illustrate this.
A classic trading rule: “Never turn a trade into an investment or an investment into a trade.” A trader’s goal is to take advantage of the volatility of daily price fluctuations to earn a short-term profit. This is a defined holding period (i.e, before the market closes that day; 48 hours, etc.). A trader who extends this into a longer frame — usually because the trade went against them — is making a classic time frame error. How many traders who shift a trade into an investment have done all of the requisite research, thinking and planning for a longer-term hold?
This reveals the shifting of time frames for exactly the wrong reasons.
Investors can make a similar mistake. They own something with an expected multiyear holding period, only to bounce the stock on some very short-term news — a critical review of a product, a negative research report, a 5 percent price drop. I doubt any of these investors has in their long-term plan “I will sell XYZ if an analyst downgrades the stock.” Yet that is what they do all the time.
Good investors must learn to contextualize the daily background noise. That is my phrase for the never-ending proliferation of economic news releases, media broadcasts, technical updates, and cable TV shows that are mostly meaningless time fillers. Television and radio have 24 hours a day to fill — does anyone believe that all of that content is meaningful? The Internet has an infinite number of pages to fill — guess how many are truly valuable?
Consider these various time frames, and what they mean to your investing or trading approach:
Minute-to-minute: A very noisy and constant flow of prices, rumors and chatter about stocks; this is the realm of day traders, Twitter and institutional desks. If you are an investor, nothing is more meaningless to you than this time frame.Hourly: Similar to minute flow, only now we can add how the stock opens or closes. Traders can be heard to say things like “strong open in XYZ” or “I hate the way the ABC closed.”Daily: Filled with random gains and losses, driven mostly by the overall market (my guess 35 percent) or the equity’s sector (about 30 percent). News flow often pushes prices in one direction, only to quickly reverse after a short period. Still reflects economic and other noise overall.Weekly: Informative charts: Overall trend begins to show. Begins to smooth out the random movements. Noise factor considerably less. Good way to think about cyclical markets (i.e., two to five years).Monthly: Provides a window into longer term, decade-long secular cycles. Most traders ignore the monthly charts — too slow, they say — but these can give you some insight into real (vs. false) reversals.Quarterly: Valuation data comes into focus via earnings. A longer-term view allows potential mean reversion to be taken advantage of (via rebalancing).Annual: For retirement planning and life events. Yearly data put the rest of the noise into perspective. Most of the weekly or monthly random up-and-down movements get smoothed out. Ultimately, this is where long-term investors should be focused.Decades: The market historian’s friend.
What’s your time frame like?
http://www.ritholtz.com/blog/2013/03/a-crucial-investing-question-do-you-know-your-time-frame/
How To Improve Your Value Investing Returns
Do your value shares go higher after you've sold? Here's what to do.
I'm a dyed-in-the-wool deep-value investor and have noticed two things about my strategy:
1. It works more often than it doesn't, and;
2. When it works well, the shares often go on to far greater things after I've sold.
Regarding the first point, remember; my strategy doesn't -- and can't -- work every time. In my experience, my approach simply works far more often than it doesn't, and I gradually come out well ahead.
As for the second point, we all have to learn to accept it as an inevitable part of being a bargain-value hunter. You will see recovery situations go on to greater things after you've seen the basic value 'come out'.
What to do
But there are a few actions to take that may help maximise your returns.
First off, if your bargain-value selection offers the best of all worlds; i.e. if there's some simultaneous excitement from a little growth potential, then be patient.
Often, value shares that are successful turnarounds become growth stories, or 'GARP' shares (growth at a reasonable price). In these situations, it may be wise to wait.
If you're unsure about what to do, but the basic value has come out, then selling enough to retain your original stake and letting the rest run for free can be a good tactic.
Selling too soon?
Personally, I usually sell too soon. You may have heard the phrase 'leave something for the next guy' from value investors. What they mean is that, when the basic value is out, it's out -- so let the future price do what it will. If it goes on to a 'fuller' value, then so be it.
You will rarely be able to buy at the bottom or sell at the top. Buying at a level you perceive as cheap and selling at a more reasonable value is what my deep-value approach is all about.
But I've realised that as a value investor, I can be too pessimistic about future prospects, just at the point of turnaround.
Run the winners longer
Consequently, I've resolved to run my winners longer. The value in deep-value shares can come out over days, weeks or months, but more usually it takes years. So a resolution to be patient and not to be tempted into too short term a profit, and to allow for a modicum of optimism should help not leave too much in for the next guy!
Don't stop loss
Stop-losses may be a useful tactic in certain situations. But on the whole, they don't work. They certainly aren't appropriate for value investing in my opinion. If an investment declines by 10% in a company which you perceived as undervalued, and there has been no fundamental change in the value metrics, then why would you sell?
The answer is that you wouldn't. If anything, have the courage to average down your purchase price.
A stop-loss can be helpful if you think the shares have further to go as they begin to enjoy a growth rating.
Be sure about your safety margin
In order to be confident about averaging down, though, you need to be sure about your safety margin.
The three most important word's in Benjamin Graham's lexicon were 'margin of safety' -- the price at which a share can be bought with minimal downside risk.
A substantial margin of safety exists when a share is available at a big discount to its 'fair' value. By building a substantial margin of safety into your investments on the basis of well-researched factual information, you will help protect the downside.
Being as sure as you can be about the safety margin in the first place will give you the confidence to average down. You will also have the information you need to set something like a fair price target, however long it takes for that price to be reached.
But even with this strategy, there will still be ones that go wrong.
Don't try to time it
Don't try to time the market. There's an army of people out there with endless data. Why would you know better?
Instead, try to find companies trading at historically low prices and on historically low ratings with strong balance sheets and wait for the value to come out.
As Ben Graham said "[investors] … should rarely buy [shares] when their short-term prospects look bright."
Don't over trade
And finally, a reluctance to trade will help you maximise your value investing returns. Remember, trading costs and most frequent traders lose money.
By David Holding
http://www.fool.co.uk
I'm a dyed-in-the-wool deep-value investor and have noticed two things about my strategy:
1. It works more often than it doesn't, and;
2. When it works well, the shares often go on to far greater things after I've sold.
Regarding the first point, remember; my strategy doesn't -- and can't -- work every time. In my experience, my approach simply works far more often than it doesn't, and I gradually come out well ahead.
As for the second point, we all have to learn to accept it as an inevitable part of being a bargain-value hunter. You will see recovery situations go on to greater things after you've seen the basic value 'come out'.
What to do
But there are a few actions to take that may help maximise your returns.
First off, if your bargain-value selection offers the best of all worlds; i.e. if there's some simultaneous excitement from a little growth potential, then be patient.
Often, value shares that are successful turnarounds become growth stories, or 'GARP' shares (growth at a reasonable price). In these situations, it may be wise to wait.
If you're unsure about what to do, but the basic value has come out, then selling enough to retain your original stake and letting the rest run for free can be a good tactic.
Selling too soon?
Personally, I usually sell too soon. You may have heard the phrase 'leave something for the next guy' from value investors. What they mean is that, when the basic value is out, it's out -- so let the future price do what it will. If it goes on to a 'fuller' value, then so be it.
You will rarely be able to buy at the bottom or sell at the top. Buying at a level you perceive as cheap and selling at a more reasonable value is what my deep-value approach is all about.
But I've realised that as a value investor, I can be too pessimistic about future prospects, just at the point of turnaround.
Run the winners longer
Consequently, I've resolved to run my winners longer. The value in deep-value shares can come out over days, weeks or months, but more usually it takes years. So a resolution to be patient and not to be tempted into too short term a profit, and to allow for a modicum of optimism should help not leave too much in for the next guy!
Don't stop loss
Stop-losses may be a useful tactic in certain situations. But on the whole, they don't work. They certainly aren't appropriate for value investing in my opinion. If an investment declines by 10% in a company which you perceived as undervalued, and there has been no fundamental change in the value metrics, then why would you sell?
The answer is that you wouldn't. If anything, have the courage to average down your purchase price.
A stop-loss can be helpful if you think the shares have further to go as they begin to enjoy a growth rating.
Be sure about your safety margin
In order to be confident about averaging down, though, you need to be sure about your safety margin.
The three most important word's in Benjamin Graham's lexicon were 'margin of safety' -- the price at which a share can be bought with minimal downside risk.
A substantial margin of safety exists when a share is available at a big discount to its 'fair' value. By building a substantial margin of safety into your investments on the basis of well-researched factual information, you will help protect the downside.
Being as sure as you can be about the safety margin in the first place will give you the confidence to average down. You will also have the information you need to set something like a fair price target, however long it takes for that price to be reached.
But even with this strategy, there will still be ones that go wrong.
Don't try to time it
Don't try to time the market. There's an army of people out there with endless data. Why would you know better?
Instead, try to find companies trading at historically low prices and on historically low ratings with strong balance sheets and wait for the value to come out.
As Ben Graham said "[investors] … should rarely buy [shares] when their short-term prospects look bright."
Don't over trade
And finally, a reluctance to trade will help you maximise your value investing returns. Remember, trading costs and most frequent traders lose money.
By David Holding
http://www.fool.co.uk
Saturday, 21 September 2013
Quote for the day
“I see the younger generation hampered by the need to understand and rationalize why something should go up or down. Usually, by the time that becomes self-evident, the move is already over. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart." - Paul Tudor Jones
20-Sep-2013 CSE Trade Summary
Crossings - 20/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New Low on 20/09/2013
Thursday, 19 September 2013
20 Insights from the Book ‘Super Performance Stocks’
If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.
Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.
1. The first consideration in buying stock is safety.
Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.
The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.
2. All stocks are price-cyclical
For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.
3. A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market
There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken.
4. The catalysts
Superperformance is triggered by many actions, such as a surprise announcement of a large increase in a company’s earnings, or the decision of one company to merge with another. But most often it is found in stocks that are rebounding from oversold conditions, such as those characteristic of bear market bottoms
When stocks begin to regain strength after touching bear market lows, which are the stocks that bounce back fastest and strongest? Contrary to a belief held by some investment advisers, it is not the big, quality stocks…Rapidly increasing earnings were characteristic of most of the stocks on the list. Another notable feature is their size; these companies were all quite small – in terms of float and market cap
5. Sooner or later, all trends come to an end
Superperformance price action is not consistent year after year in even the greatest growth stocks. The stock prices usually move rapidly upward for a period of months or several years. This is the superperformance stage. The superperformance stage might be followed by a price reaction, or a sideways price movement. After a period of consolidation, which sometimes lasts for years, there might be another superperformance stage.
Most stocks experience declining prices after a superperformance phase has run its course. In many cases the price decline is severe. There appear to be three principal causes for the price reactions. These include weakness in the stock market in general, including the beginnings of a new bear market; the overpricing of stocks, which often results in profit-taking and a lack of new buying interest; and a drop in a stock’s earnings. However, in most of the latter instances the stock’s price began its slide before the reported earnings began to decline. In many cases, though, the earnings decline was undoubtedly anticipated by some investors.
6. Look for small float, small cap companies with innovative products
Opportunities for big gains in the stock market are more likely to occur in relatively small companies than in companies with many millions of shares outstanding. Look for a small company introducing a unique product that is likely to become widely used. This is the combination that has time after time resulted in dynamic growth and volatile superperformance stock-price action.
7. Change means opportunity, and change is the one thing that is certain.
The introduction or planned introduction of a unique new product can have a dynamic effect on the price of the stock of a relatively small company. Many investors tend to be attracted to new, developing situations and to ignore old, established, stable situations. A large, mature company is likely to remain relatively stable in price, thus offering comparatively little opportunity for large capital gains.
8. Growth, Growth, Growth
Any investor looking for large capital gains in the stock market should look for companies that are in the growth stage of the life cycle. These are usually companies that have been established for a few years; they have been in existence long enough so that their chances of survival are pretty good. But they are usually fairly small companies, with comparatively few shares of common stock issued, usually under ten million. The percentage growth of sales and earnings, and also the stock’s price, can usually be much more rapid for a five-million-share company than for a hundred-and fifty- million-share company, particularly if an appealing new product is being manufactured and large companies do not have the advantage of patents and established distribution channels for that particular product.
9. A good story can only get you so far
In choosing growth-stage companies, it is necessary to be very selective. Stock prices can be pushed up quickly because of a good promotion or story that usually describes impressive plans for future development. But in the long run stock prices are based on earning power. So the story has to begin to come true or else disillusioned investors will begin to sell their stock and drive down the price. As long as the story is coming true through satisfactorily increasing earnings, most investors will continue to hold their stock. Separating fact from fancy is the big job of investors who are searching for growth, and for superperformance price action based on growth.
10. Look for sudden earnings explosion. It will take awhile for the market to discount it properly
Earnings explosions are often of great significance because they call attention to newly developed earning power. Recently I ran across a small clipping I had torn from a local newspaper in the summer of 1963. The clipping reads: “Xerox Corporation in 6 months ended June 30 earned $10,327,031 or $2.66 a share vs. $5,658,165 or $1.74 in 1962 period.” That is an example of an earnings explosion: a large sudden increase in the profitability of a company. The earnings explosion occurred just after Xerox introduced its new copiers, and the earnings increase was directly traceable to revenues from the new copiers.
11. Rumors are also catalysts
One of the strongest forces propelling the price increase was the rumor, later confirmed, of a large increase in earnings. In this case the earnings for the 1963 fiscal year were more than quadruple the earnings for fiscal 1962. Of even greater importance than reported earnings, however, was the expectation in the minds of speculators that future earnings would be even larger. Syntex at that time was one of two companies pioneering the development of birth control pills. Investors could anticipate a very large market and increased earnings for the future. Thus, the expectation of large future earnings caused a buyers’ stampede for the stock.
12. Market is forward looking. Expectations Matter
Higher Earnings Are Usually Anticipated But how about earnings that are uncomplicated by manipulation, that are higher simply because the company had a much more profitable year? Let’s suppose the earnings are reported and they have doubled. The stock should go up in price, right? No, not necessarily. Not if a dozen mutual fund managers had expected earnings to triple, not merely double. They would be disappointed and might decide to sell. Other investors who had predicted the earnings increase might decide to sell on the news. Reports of large increases in earnings have their biggest impact when they come as a surprise. When that happens, almost everyone has an opportunity to participate in the resulting rise. Being able to interpret the effect that an earnings report will have on the market is very important. And even more significant is the light it might cast on the company’s prospects for continued future profits. Earning power, real and potential, is the most important feature to look for.
13. Multiples Expansion
Most superperformance price moves are caused not by developments such as increased earnings, but rather by overreaction of investors to those developments. The overreaction can be measured quite accurately by comparing the increase in the price to the increase in earnings—that is, by the expansion in the P/E ratio. Some of the biggest stock market profits are made by going along with the crowd while it pushes the price of a stock higher and higher in non stop optimism.
14. Momentum and the fear of missing out
Sometimes the quickest profits are obtained during these periods of optimism in very active stocks that everyone seems to be aware of and many people are trading. But with this type of stock it is important to be in the action early. Cautious investors often delay their purchase until they are absolutely certain that they are right in buying a stock. It is often at this point that the stock, which has been going up in price for some time, is due for a reaction. Do not be too late in joining the action; it is also important not to overstay a position that has turned stale or has started to decline. Be alert for turns or changes in investor psychology. For your own protection it is discreet to use stop-loss orders if the price of a stock has risen rapidly.
15. Market is a giant mood ring
Just as there are times to go along with the bullish enthusiasm of the crowd, there are also times to leave, to stand aside. The time to sell is when the bullish drive is beginning to lose its momentum, to turn stale. Price superperformance phases do not last indefinitely. Most of them last only a couple of years, then the stock reacts into a downtrend or sideways price action. The prevailing mood of investors changes, often slowly, from bullish optimism, to doubt and apprehension, to bearish pessimism, and finally to panic as the decline accelerates. As with unbounded optimism, never underestimate the power of negative thinking.
Fear and pessimism become so overwhelming at times that even the strongest, most bullish-looking stocks are caught up in the selling deluge. The speculative mood of investors appears to move in waves of pessimism and optimism that are based on actual economic or political conditions but which greatly amplify those conditions.
16. The P/E ratio reflects the enthusiastic optimism or gloomy pessimism of investors.
More important than your mood is your sensitivity to whether the crowd is optimistic or pessimistic. The rewards are few if you are optimistic while the crowd is selling in waves of pessimism. The crowd may be wrong, but you cannot fight the crowd by yourself. If you try to buck the stampede, you will be trampled. If you buy a stock too early during a period of highly emotional selling, you will soon discover that you have a loss, and perhaps a large one. The time to be contrary, to sell or to pick up bargains, is after an emotional binge of mass optimism or pessimism has lost momentum and a reversal is imminent. Soon others will realize that the future is not as bleak or as rosy as it had appeared.
P/E ratios expand to higher multiples when the future looks very good; they contract to lower multiples when the future looks bleak or uncertain. P/E’s are sensitive measurements of mass psychology. The evidence indicates, therefore, that investor psychology is just the opposite of what it should be for successful investment, since P/E ratios have been high at the end of superperformance moves. But it is after a stock price has moved upward for two or three years that caution and a low P/E ratio are called for, since it is at this time that a price reaction is most likely to occur. And even the very best stocks have price reactions.
17. Value is subjective. Price is what the market is willing to pay you now.
A piece of property is worth as much as someone is willing to pay you for it. So it is with common stock. Find stocks for which you think someone will be willing to pay you a higher price at some time in the future. This approach is applicable to any type of investment—in a diamond, a painting, a bushel of corn or wheat, a house, a piece of land, or a share of common stock. The market price of the item reflects the psychological factors—the extremes of optimism and pessimism—that can cause the value of an item to vary widely, sometimes in just a few hours or days. When the market value of an item is plummeting, it reveals that the fear many people have of lower values for their property is stronger than their hopes for higher prices.
18. There often appears to be little relationship between the price of a stock and its inherent value.
Stocks that are overpriced relative to their inherent value often have severe price declines sooner or later, but many of them remain in an overpriced state for years before the price reaction occurs. In a similar way, some stocks of companies in unglamourous industries are frequently depressed in price, as compared with stocks in general. Throughout the late 1960s and early 1970s when most stock prices and the market averages were soaring, the steel industry stocks remained depressed. The mere fact that a stock is depressed in price relative to its inherent value does not necessarily mean that an adjustment will be made and that the stock’s price will rise. The stock can remain depressed for many, many years. Finding ”value” is not enough, by itself, to assure that a specific investment is good. The book values of stocks are relatively stable in comparison with their large fluctuations in market price.
19. The Art of taking profits
Timing the sale is more difficult than timing the purchase because stocks reach their bear market lows simultaneously, but their bull market highs are attained independently. Following the stock averages and selling when the primary trend turns down is often unsatisfactory, since numerous stocks reach their peaks prior to the peaks in the averages. The price and volume trend for each stock must be studied independently and action taken accordingly.
20. Short Selling
Profits in the stock market can usually be made faster by selling stocks short than by buying them. The reason is that price declines are usually much steeper than price rises, which occur more gradually, over a longer period of time, and are usually accompanied by a healthy amount of pessimism that gradually lessens the longer the price rise continues. Price declines, on the other hand, contain an element of panic that increases as stock prices plunge lower.
By Ivanhoff
http://stocktwits50.com/
Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.
1. The first consideration in buying stock is safety.
Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.
The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.
2. All stocks are price-cyclical
For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.
3. A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market
There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken.
4. The catalysts
Superperformance is triggered by many actions, such as a surprise announcement of a large increase in a company’s earnings, or the decision of one company to merge with another. But most often it is found in stocks that are rebounding from oversold conditions, such as those characteristic of bear market bottoms
When stocks begin to regain strength after touching bear market lows, which are the stocks that bounce back fastest and strongest? Contrary to a belief held by some investment advisers, it is not the big, quality stocks…Rapidly increasing earnings were characteristic of most of the stocks on the list. Another notable feature is their size; these companies were all quite small – in terms of float and market cap
5. Sooner or later, all trends come to an end
Superperformance price action is not consistent year after year in even the greatest growth stocks. The stock prices usually move rapidly upward for a period of months or several years. This is the superperformance stage. The superperformance stage might be followed by a price reaction, or a sideways price movement. After a period of consolidation, which sometimes lasts for years, there might be another superperformance stage.
Most stocks experience declining prices after a superperformance phase has run its course. In many cases the price decline is severe. There appear to be three principal causes for the price reactions. These include weakness in the stock market in general, including the beginnings of a new bear market; the overpricing of stocks, which often results in profit-taking and a lack of new buying interest; and a drop in a stock’s earnings. However, in most of the latter instances the stock’s price began its slide before the reported earnings began to decline. In many cases, though, the earnings decline was undoubtedly anticipated by some investors.
6. Look for small float, small cap companies with innovative products
Opportunities for big gains in the stock market are more likely to occur in relatively small companies than in companies with many millions of shares outstanding. Look for a small company introducing a unique product that is likely to become widely used. This is the combination that has time after time resulted in dynamic growth and volatile superperformance stock-price action.
7. Change means opportunity, and change is the one thing that is certain.
The introduction or planned introduction of a unique new product can have a dynamic effect on the price of the stock of a relatively small company. Many investors tend to be attracted to new, developing situations and to ignore old, established, stable situations. A large, mature company is likely to remain relatively stable in price, thus offering comparatively little opportunity for large capital gains.
8. Growth, Growth, Growth
Any investor looking for large capital gains in the stock market should look for companies that are in the growth stage of the life cycle. These are usually companies that have been established for a few years; they have been in existence long enough so that their chances of survival are pretty good. But they are usually fairly small companies, with comparatively few shares of common stock issued, usually under ten million. The percentage growth of sales and earnings, and also the stock’s price, can usually be much more rapid for a five-million-share company than for a hundred-and fifty- million-share company, particularly if an appealing new product is being manufactured and large companies do not have the advantage of patents and established distribution channels for that particular product.
9. A good story can only get you so far
In choosing growth-stage companies, it is necessary to be very selective. Stock prices can be pushed up quickly because of a good promotion or story that usually describes impressive plans for future development. But in the long run stock prices are based on earning power. So the story has to begin to come true or else disillusioned investors will begin to sell their stock and drive down the price. As long as the story is coming true through satisfactorily increasing earnings, most investors will continue to hold their stock. Separating fact from fancy is the big job of investors who are searching for growth, and for superperformance price action based on growth.
10. Look for sudden earnings explosion. It will take awhile for the market to discount it properly
Earnings explosions are often of great significance because they call attention to newly developed earning power. Recently I ran across a small clipping I had torn from a local newspaper in the summer of 1963. The clipping reads: “Xerox Corporation in 6 months ended June 30 earned $10,327,031 or $2.66 a share vs. $5,658,165 or $1.74 in 1962 period.” That is an example of an earnings explosion: a large sudden increase in the profitability of a company. The earnings explosion occurred just after Xerox introduced its new copiers, and the earnings increase was directly traceable to revenues from the new copiers.
11. Rumors are also catalysts
One of the strongest forces propelling the price increase was the rumor, later confirmed, of a large increase in earnings. In this case the earnings for the 1963 fiscal year were more than quadruple the earnings for fiscal 1962. Of even greater importance than reported earnings, however, was the expectation in the minds of speculators that future earnings would be even larger. Syntex at that time was one of two companies pioneering the development of birth control pills. Investors could anticipate a very large market and increased earnings for the future. Thus, the expectation of large future earnings caused a buyers’ stampede for the stock.
12. Market is forward looking. Expectations Matter
Higher Earnings Are Usually Anticipated But how about earnings that are uncomplicated by manipulation, that are higher simply because the company had a much more profitable year? Let’s suppose the earnings are reported and they have doubled. The stock should go up in price, right? No, not necessarily. Not if a dozen mutual fund managers had expected earnings to triple, not merely double. They would be disappointed and might decide to sell. Other investors who had predicted the earnings increase might decide to sell on the news. Reports of large increases in earnings have their biggest impact when they come as a surprise. When that happens, almost everyone has an opportunity to participate in the resulting rise. Being able to interpret the effect that an earnings report will have on the market is very important. And even more significant is the light it might cast on the company’s prospects for continued future profits. Earning power, real and potential, is the most important feature to look for.
13. Multiples Expansion
Most superperformance price moves are caused not by developments such as increased earnings, but rather by overreaction of investors to those developments. The overreaction can be measured quite accurately by comparing the increase in the price to the increase in earnings—that is, by the expansion in the P/E ratio. Some of the biggest stock market profits are made by going along with the crowd while it pushes the price of a stock higher and higher in non stop optimism.
14. Momentum and the fear of missing out
Sometimes the quickest profits are obtained during these periods of optimism in very active stocks that everyone seems to be aware of and many people are trading. But with this type of stock it is important to be in the action early. Cautious investors often delay their purchase until they are absolutely certain that they are right in buying a stock. It is often at this point that the stock, which has been going up in price for some time, is due for a reaction. Do not be too late in joining the action; it is also important not to overstay a position that has turned stale or has started to decline. Be alert for turns or changes in investor psychology. For your own protection it is discreet to use stop-loss orders if the price of a stock has risen rapidly.
15. Market is a giant mood ring
Just as there are times to go along with the bullish enthusiasm of the crowd, there are also times to leave, to stand aside. The time to sell is when the bullish drive is beginning to lose its momentum, to turn stale. Price superperformance phases do not last indefinitely. Most of them last only a couple of years, then the stock reacts into a downtrend or sideways price action. The prevailing mood of investors changes, often slowly, from bullish optimism, to doubt and apprehension, to bearish pessimism, and finally to panic as the decline accelerates. As with unbounded optimism, never underestimate the power of negative thinking.
Fear and pessimism become so overwhelming at times that even the strongest, most bullish-looking stocks are caught up in the selling deluge. The speculative mood of investors appears to move in waves of pessimism and optimism that are based on actual economic or political conditions but which greatly amplify those conditions.
16. The P/E ratio reflects the enthusiastic optimism or gloomy pessimism of investors.
More important than your mood is your sensitivity to whether the crowd is optimistic or pessimistic. The rewards are few if you are optimistic while the crowd is selling in waves of pessimism. The crowd may be wrong, but you cannot fight the crowd by yourself. If you try to buck the stampede, you will be trampled. If you buy a stock too early during a period of highly emotional selling, you will soon discover that you have a loss, and perhaps a large one. The time to be contrary, to sell or to pick up bargains, is after an emotional binge of mass optimism or pessimism has lost momentum and a reversal is imminent. Soon others will realize that the future is not as bleak or as rosy as it had appeared.
P/E ratios expand to higher multiples when the future looks very good; they contract to lower multiples when the future looks bleak or uncertain. P/E’s are sensitive measurements of mass psychology. The evidence indicates, therefore, that investor psychology is just the opposite of what it should be for successful investment, since P/E ratios have been high at the end of superperformance moves. But it is after a stock price has moved upward for two or three years that caution and a low P/E ratio are called for, since it is at this time that a price reaction is most likely to occur. And even the very best stocks have price reactions.
17. Value is subjective. Price is what the market is willing to pay you now.
A piece of property is worth as much as someone is willing to pay you for it. So it is with common stock. Find stocks for which you think someone will be willing to pay you a higher price at some time in the future. This approach is applicable to any type of investment—in a diamond, a painting, a bushel of corn or wheat, a house, a piece of land, or a share of common stock. The market price of the item reflects the psychological factors—the extremes of optimism and pessimism—that can cause the value of an item to vary widely, sometimes in just a few hours or days. When the market value of an item is plummeting, it reveals that the fear many people have of lower values for their property is stronger than their hopes for higher prices.
18. There often appears to be little relationship between the price of a stock and its inherent value.
Stocks that are overpriced relative to their inherent value often have severe price declines sooner or later, but many of them remain in an overpriced state for years before the price reaction occurs. In a similar way, some stocks of companies in unglamourous industries are frequently depressed in price, as compared with stocks in general. Throughout the late 1960s and early 1970s when most stock prices and the market averages were soaring, the steel industry stocks remained depressed. The mere fact that a stock is depressed in price relative to its inherent value does not necessarily mean that an adjustment will be made and that the stock’s price will rise. The stock can remain depressed for many, many years. Finding ”value” is not enough, by itself, to assure that a specific investment is good. The book values of stocks are relatively stable in comparison with their large fluctuations in market price.
19. The Art of taking profits
Timing the sale is more difficult than timing the purchase because stocks reach their bear market lows simultaneously, but their bull market highs are attained independently. Following the stock averages and selling when the primary trend turns down is often unsatisfactory, since numerous stocks reach their peaks prior to the peaks in the averages. The price and volume trend for each stock must be studied independently and action taken accordingly.
20. Short Selling
Profits in the stock market can usually be made faster by selling stocks short than by buying them. The reason is that price declines are usually much steeper than price rises, which occur more gradually, over a longer period of time, and are usually accompanied by a healthy amount of pessimism that gradually lessens the longer the price rise continues. Price declines, on the other hand, contain an element of panic that increases as stock prices plunge lower.
By Ivanhoff
http://stocktwits50.com/
Wednesday, 18 September 2013
Quote for the day
“Basically, I think equity investors had their hearts broken, as happens from time to time in the investment world. The promise of easy money turned out to be empty — as usual — and investors who had adopted overblown expectations promised 'never again.'” - Howard Marks
18-Sep-2013 CSE Trade Summary
Crossings - 18/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 18/09/2013
Tuesday, 17 September 2013
Quote for the day
"It is important that the trader determine what type of market, trending or consolidating, best suits their own personality and strength. The best traders stay focused on one or the other and master it." - Clifford Bennett
17-Sep-2013 CSE Trade Summary
Crossings - 17/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 17/09/2013
Monday, 16 September 2013
Quote for the day
“When I talk to other traders, I try to keep very conscious of the idea that I have to listen to myself. I try to take their information without getting overly influenced by their opinion.”- Michael Marcus
16-Sep-2013 CSE Trade Summary
Crossings - 16/09/2013 - Top 10 Contributors to Change ASPI
Following Stocks Reached New High / Low on 16/09/2013
Sunday, 15 September 2013
Seven Cures for a Lean Purse
1.Start thy purse to fattening
Take one-tenth of what you bring in and save it for the future. The book uses a coin analogy: for every nine coins you spend, take one and put it away for yourself. This is very sensible; a goal all of us should have.
Take one-tenth of what you bring in and save it for the future. The book uses a coin analogy: for every nine coins you spend, take one and put it away for yourself. This is very sensible; a goal all of us should have.
2.Control thy expenditures
Don’t buy frivolous things even if you have enough money to pay for them. Instead, make sure that you can continue to save one-tenth of what you bring in. For this reason, I write about frugality on The Simple Dollar.
Don’t buy frivolous things even if you have enough money to pay for them. Instead, make sure that you can continue to save one-tenth of what you bring in. For this reason, I write about frugality on The Simple Dollar.
3.Make thy gold multiply
Once you start to build up some savings, invest that money so that it will make more money for you. Another pretty clear point; if you start saving money, it shouldn't just sit in a mattress. Even a high-yield savings account is much better than that, and it can double your principal in about fifteen years.
Once you start to build up some savings, invest that money so that it will make more money for you. Another pretty clear point; if you start saving money, it shouldn't just sit in a mattress. Even a high-yield savings account is much better than that, and it can double your principal in about fifteen years.
4.Guard thy treasure from loss
This one is interesting: you should only invest in things where the principal is safe. In other words, the book seems to discourage stock investing. I found this to be particularly interesting given that it was written in 1927, right in the midst of the first big American stock market boom. Of course, 1929 proved the author
This one is interesting: you should only invest in things where the principal is safe. In other words, the book seems to discourage stock investing. I found this to be particularly interesting given that it was written in 1927, right in the midst of the first big American stock market boom. Of course, 1929 proved the author
right.
5.Make of thy dwelling a profitable investment
One should own their own home rather than renting because then money can be invested in the home or invested in other things rather than handed over to the landlord. Something tells me that this lesson applied better before people were looking at homes that were three or four times their annual income.
One should own their own home rather than renting because then money can be invested in the home or invested in other things rather than handed over to the landlord. Something tells me that this lesson applied better before people were looking at homes that were three or four times their annual income.
6.Insure a future income
In other words, invest for retirement and your family’s well being after your passing. You should be dropping some Hamiltons right into your retirement account if you can possibly afford it.
In other words, invest for retirement and your family’s well being after your passing. You should be dropping some Hamiltons right into your retirement account if you can possibly afford it.
7.Increase thy ability to earn
Work hard, look for opportunities, and educate yourself. Today, a college education is one of the best investments you can make; I'm not saying that it’s a requirement to be successful, but it opens the door to greater possibilities.
Those who wants to download the whole book please find from the following link.
http://www.ccsales.com/the_richest_man_in_babylon.pdf
Happy reading.
Work hard, look for opportunities, and educate yourself. Today, a college education is one of the best investments you can make; I'm not saying that it’s a requirement to be successful, but it opens the door to greater possibilities.
Those who wants to download the whole book please find from the following link.
http://www.ccsales.com/the_richest_man_in_babylon.pdf
Happy reading.
Saturday, 14 September 2013
15 Characteristics of Sophisticated, Successful Investors
1.Successful investors are proactive learners
The first characteristic of successful investors is that they are proactive learners. They spend more time studying than the average investors. They are also voracious readers. Successful investors know that their cup of knowledge must never be full, so they always keep their minds open; ever ready to learn.
"To learn new things; you might need to unlearn old thought and tricks. Both processes can never be achieved without humility." – Ajaero Tony Martins
These set of investors are also willing to pay for knowledge so long it’s something new. They read books, journals and magazines ranging from investing to personal development. They also attend seminars to improve themselves.
"The rich invest in time, the poor invest in money." – Warren Buffett
2. They always invest with a planned exit strategy
"Go to the mouse you foolish investor and learn. A mouse never entrusts its life to only one hole." – Ajaero Tony Martins
Successful investors know that there are always two sides to an investment. They know that the future is unpredictable so they prepare in advance for it. Average investors try to predict the future of their investments; they count their chickens before they are hatched. Successful investors do the opposite; they prepare for the best while still preparing for the worst.
"Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental." – Rich Dad
This is the ultimate reason why successful investors make money when the market goes up and even make more money when it comes down. Do you want to be a successful investor? Then plan your exit before you enter any investment.
"Many people rush into the game of investing thinking they are predators. When they get to the middle of the game, they then realize they are the prey and try to escape but it will be too late. Only the preys with a well defined exit strategy will escape, the rest will be slaughtered by the real predators." – Ajaero Tony Martins
3.They are patient
Successful investors are very patient. When they make their calculations on an investment, they are prepared to wait to make sure their plan materialize. They plan to take advantage of a short term bulls market but as a backup plan, they still plan to hold on for as long as.
"I never attempt to make money on the stock market. I buy on assumption they could close the market the next day and not re-open it for five years." – Warren Buffett
4.Successful investors have strong emotional control
Every true investor knows that the market is driven by sentiment. Market surges and declines are mainly caused by two emotional factors; fear and greed. Average investors invest based on these emotions but successful investors have a stronger control over these emotions. They don't allow the talks from investment pundits or financial advisors affect their choice or method of investing.
"Every few seconds it changes, up an eighth, down an eighth. It's like playing a slot machine. I lose $20 million, I gain $20 million." – Ted Turner
Successful investors also have a neutral reaction to either winning or losing. They don't abandon their investing strategy simply because of a few failures and they don't become over confident when they are on the winning side. No matter the market conditions, they still respect the 50-50 chance of winning or losing.
"To be a successful business owner and investor, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game." – Rich Dad
5.They have a well defined investing strategy
"A winning strategy must include losing." – Rich Dad
Every successful investor has over time developed a well defined investing strategy that works and they stick to this strategy. While some successful investors implement the portfolio diversification strategy, others like Warren Buffett follow the portfolio focus strategy.
"Diversification is a protection against ignorance. It makes very little sense to those who know what they are doing." – Warren Buffet
Though I strongly believe in portfolio focus strategy, I think every investor is entitled to his or her investing style. No matter the strategy you use, just make sure you know what you are doing.
"The wise man put all his eggs in one basket and watches the basket." – Andrew Carnegie
6.They are focused
"The men who have succeeded are men who have chosen one line and stuck to it." – Andrew Carnegie
Successful investors are focused on their investment vehicle. They take it one step at a time; one investment at a time. For instance; Tim Ferris said on his blog that he would rather stick to angel investing than attempt to stock trade because he understands angel investing better. Warren Buffett is focused on stocks, Tim Ferris on angel investing, Jim Rogers on commodities future and Donald Trump on real estate.
7. Successful investors use trend to their advantage
"Your greatest and most powerful business survival strategy is going to be the speed at which you handle the speed of change. That speed of change is trend." – Ajaero Tony Martins
Another attribute of successful investors is that they know how to use trend to their advantage. Average investors panic over market fluctuations but professional investors welcome these fluctuations because it's based on these fluctuations that they make their money.
Successful investors use trends such as market sentiments, political instability and company's crisis to their advantage.
"Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it." – Warren Buffett
8. They are persistent
"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it." – Henry Ford
Sticking to your investing strategy whether you are winning or losing requires a great deal of persistence. Average investors lack persistence and that's why they will forever remain average. They jump from one strategy to another and are always looking for the next hot tip.
"Most people give up just when they are about to achieve success. They quit on one yard line. They give up the at last minute of the game one foot from a winning touch down." – Henry Ross Perot
9.They thrive on risk
"Risk comes from not knowing what you are doing." – Warren Buffett
Investing is a risk but not knowing what you are doing is a greater risk. Every professional investor, whether on the winning or losing side still respect the 50-50 probability of success or failure. A major difference between a professional investor and an average investor is that a professional investor will always invest with a strong risk management system in place. Have you ever heard of the word "Hedge?"
"Seek advice on risk from the wealthy who still take risks, not friends who dare nothing more than a football bet." – J. Paul Getty
10. Successful investors are disciplined
Successful investors are strict with themselves when it comes to investing. Aside their investing rules and principles, they are still guided by a strong self imposed standard. Professional investors know that it takes a great deal of discipline to stick to your investing strategies despite distractions from self proclaimed investment pundits.
"My two rules of investing: Rule one – never lose money. Rule two – never forget rule one." – Warren Buffett
11. They know how to use leverage to their advantage
Before I proceed, I want to ask a question. What's the major difference between a successful investor such as Warren Buffett and the average investor? My answer is this; a successful investor knows how to make money by investing with other people's money while an average investor invests with personal funds. Investing with other people's money is a form of leverage.
"The most important word in the world of money is cash flow. The second most important word is leverage." – Rich Dad
Other people's money is not the only form of leverage an investor can utilize. Your leverage can be your professional team, your investing experience or inside information.
"Financial leverage is the advantage the rich have over the poor and middle class." – Rich Dad
"If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem." – J. Paul Getty
12.They learn quickly from their mistakes
"Even a mistake may turn out to be the one thing necessary to a worthwhile achievement." – Henry Ford
When investors talk of experience, they are simply talking about the trials faced, mistakes made, lessons learned and triumphs achieved. You can never become a successful investor without making some miscalculations or mistakes.
Successful investors make mistakes but they are not discouraged by these mistakes because they know mistakes are part of the process to becoming a better investor. Average investors perceive mistakes as bad but successful investors see mistakes as an opportunity to learn something new.
"Only those who are asleep make no mistakes." – Ingvar Kamprad
13.They have a team of professional advisors
"It is better to hang out with people better than you. Pick out associates whose behavior is better than yours and you will drift in that direction." – Warren Buffett
If you observe successful investors closely, you will notice they have a team of professional advisors. Average investors try to beat the market alone while professional investors invest as part of a team.
Successful investors also have a network of friends made of professional investors. They share advice and brainstorm on investing challenges with their investor friends. Do you want to become a successful investor? If yes, then it's time to start choosing your friends carefully. Remember, birds of the same feather flock together.
"I have been within the four walls of school and I have been on the street. I can confidently tell you that the street is tougher, challenging, daring, exciting and more rewarding. In school; you play alone. But on the street, you play with the big boys." – Ajaero Tony Martins
14. They have a strong financial background
"Business and financial intelligence are not picked up within the four walls of school. You pick them up on the streets. In school, you are taught how to manage other people's money. On the streets, you are taught how to make money." – Ajaero Tony Martins
Just as stated in the quote above, you only become a better investor by being on the streets. Successful investors have a solid financial foundation; a foundation molded on the streets. On the streets, you learn from your own experience. Successful investors build up their financial base by attending seminars, reading books and journals, learning from a mentor and listening to tapes; after which they go out on their own to gain street experience.
Average investors try to hone their investing skills while still striving to avoid loss. Successful investors on the other hand know that experience come with losing money and learning from the loss.
15. Successful investors are passionate about investing
"Men of means look at making money as a game which they love to play." – J. Paul Getty
Why are you an investor? Your answer to this question will determine if you will be successful in the world of investing or not. A famous author once said this: "if you are going to play a game, choose a game you can play throughout your lifetime and investing is one of such game.”
If you take a look at average investors, they are always after how much they are going to make now but successful investors use delayed gratification and compounding to gain an edge.
"Wealth is only a benefit of the game of money. If you win, the money will be there." – J. Paul Getty
In conclusion, these are the 15 characteristics possessed by every successful investor. If it's your desire to join this league of investors, all you need to do is gradually develop these characters. As a final note, I want to state categorically that becoming a successful investor is within your reach. Just model the masters of the game and you will see yourself improving.
By Ajaero Tony Martins
The first characteristic of successful investors is that they are proactive learners. They spend more time studying than the average investors. They are also voracious readers. Successful investors know that their cup of knowledge must never be full, so they always keep their minds open; ever ready to learn.
"To learn new things; you might need to unlearn old thought and tricks. Both processes can never be achieved without humility." – Ajaero Tony Martins
These set of investors are also willing to pay for knowledge so long it’s something new. They read books, journals and magazines ranging from investing to personal development. They also attend seminars to improve themselves.
"The rich invest in time, the poor invest in money." – Warren Buffett
2. They always invest with a planned exit strategy
"Go to the mouse you foolish investor and learn. A mouse never entrusts its life to only one hole." – Ajaero Tony Martins
Successful investors know that there are always two sides to an investment. They know that the future is unpredictable so they prepare in advance for it. Average investors try to predict the future of their investments; they count their chickens before they are hatched. Successful investors do the opposite; they prepare for the best while still preparing for the worst.
"Always start at the end before you begin. Professional investors always have an exit strategy before they invest. Knowing your exit strategy is an important investment fundamental." – Rich Dad
This is the ultimate reason why successful investors make money when the market goes up and even make more money when it comes down. Do you want to be a successful investor? Then plan your exit before you enter any investment.
"Many people rush into the game of investing thinking they are predators. When they get to the middle of the game, they then realize they are the prey and try to escape but it will be too late. Only the preys with a well defined exit strategy will escape, the rest will be slaughtered by the real predators." – Ajaero Tony Martins
3.They are patient
Successful investors are very patient. When they make their calculations on an investment, they are prepared to wait to make sure their plan materialize. They plan to take advantage of a short term bulls market but as a backup plan, they still plan to hold on for as long as.
"I never attempt to make money on the stock market. I buy on assumption they could close the market the next day and not re-open it for five years." – Warren Buffett
4.Successful investors have strong emotional control
Every true investor knows that the market is driven by sentiment. Market surges and declines are mainly caused by two emotional factors; fear and greed. Average investors invest based on these emotions but successful investors have a stronger control over these emotions. They don't allow the talks from investment pundits or financial advisors affect their choice or method of investing.
"Every few seconds it changes, up an eighth, down an eighth. It's like playing a slot machine. I lose $20 million, I gain $20 million." – Ted Turner
Successful investors also have a neutral reaction to either winning or losing. They don't abandon their investing strategy simply because of a few failures and they don't become over confident when they are on the winning side. No matter the market conditions, they still respect the 50-50 chance of winning or losing.
"To be a successful business owner and investor, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game." – Rich Dad
5.They have a well defined investing strategy
"A winning strategy must include losing." – Rich Dad
Every successful investor has over time developed a well defined investing strategy that works and they stick to this strategy. While some successful investors implement the portfolio diversification strategy, others like Warren Buffett follow the portfolio focus strategy.
"Diversification is a protection against ignorance. It makes very little sense to those who know what they are doing." – Warren Buffet
Though I strongly believe in portfolio focus strategy, I think every investor is entitled to his or her investing style. No matter the strategy you use, just make sure you know what you are doing.
"The wise man put all his eggs in one basket and watches the basket." – Andrew Carnegie
6.They are focused
"The men who have succeeded are men who have chosen one line and stuck to it." – Andrew Carnegie
Successful investors are focused on their investment vehicle. They take it one step at a time; one investment at a time. For instance; Tim Ferris said on his blog that he would rather stick to angel investing than attempt to stock trade because he understands angel investing better. Warren Buffett is focused on stocks, Tim Ferris on angel investing, Jim Rogers on commodities future and Donald Trump on real estate.
7. Successful investors use trend to their advantage
"Your greatest and most powerful business survival strategy is going to be the speed at which you handle the speed of change. That speed of change is trend." – Ajaero Tony Martins
Another attribute of successful investors is that they know how to use trend to their advantage. Average investors panic over market fluctuations but professional investors welcome these fluctuations because it's based on these fluctuations that they make their money.
Successful investors use trends such as market sentiments, political instability and company's crisis to their advantage.
"Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it." – Warren Buffett
8. They are persistent
"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it." – Henry Ford
Sticking to your investing strategy whether you are winning or losing requires a great deal of persistence. Average investors lack persistence and that's why they will forever remain average. They jump from one strategy to another and are always looking for the next hot tip.
"Most people give up just when they are about to achieve success. They quit on one yard line. They give up the at last minute of the game one foot from a winning touch down." – Henry Ross Perot
9.They thrive on risk
"Risk comes from not knowing what you are doing." – Warren Buffett
Investing is a risk but not knowing what you are doing is a greater risk. Every professional investor, whether on the winning or losing side still respect the 50-50 probability of success or failure. A major difference between a professional investor and an average investor is that a professional investor will always invest with a strong risk management system in place. Have you ever heard of the word "Hedge?"
"Seek advice on risk from the wealthy who still take risks, not friends who dare nothing more than a football bet." – J. Paul Getty
10. Successful investors are disciplined
Successful investors are strict with themselves when it comes to investing. Aside their investing rules and principles, they are still guided by a strong self imposed standard. Professional investors know that it takes a great deal of discipline to stick to your investing strategies despite distractions from self proclaimed investment pundits.
"My two rules of investing: Rule one – never lose money. Rule two – never forget rule one." – Warren Buffett
11. They know how to use leverage to their advantage
Before I proceed, I want to ask a question. What's the major difference between a successful investor such as Warren Buffett and the average investor? My answer is this; a successful investor knows how to make money by investing with other people's money while an average investor invests with personal funds. Investing with other people's money is a form of leverage.
"The most important word in the world of money is cash flow. The second most important word is leverage." – Rich Dad
Other people's money is not the only form of leverage an investor can utilize. Your leverage can be your professional team, your investing experience or inside information.
"Financial leverage is the advantage the rich have over the poor and middle class." – Rich Dad
"If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem." – J. Paul Getty
12.They learn quickly from their mistakes
"Even a mistake may turn out to be the one thing necessary to a worthwhile achievement." – Henry Ford
When investors talk of experience, they are simply talking about the trials faced, mistakes made, lessons learned and triumphs achieved. You can never become a successful investor without making some miscalculations or mistakes.
Successful investors make mistakes but they are not discouraged by these mistakes because they know mistakes are part of the process to becoming a better investor. Average investors perceive mistakes as bad but successful investors see mistakes as an opportunity to learn something new.
"Only those who are asleep make no mistakes." – Ingvar Kamprad
13.They have a team of professional advisors
"It is better to hang out with people better than you. Pick out associates whose behavior is better than yours and you will drift in that direction." – Warren Buffett
If you observe successful investors closely, you will notice they have a team of professional advisors. Average investors try to beat the market alone while professional investors invest as part of a team.
Successful investors also have a network of friends made of professional investors. They share advice and brainstorm on investing challenges with their investor friends. Do you want to become a successful investor? If yes, then it's time to start choosing your friends carefully. Remember, birds of the same feather flock together.
"I have been within the four walls of school and I have been on the street. I can confidently tell you that the street is tougher, challenging, daring, exciting and more rewarding. In school; you play alone. But on the street, you play with the big boys." – Ajaero Tony Martins
14. They have a strong financial background
"Business and financial intelligence are not picked up within the four walls of school. You pick them up on the streets. In school, you are taught how to manage other people's money. On the streets, you are taught how to make money." – Ajaero Tony Martins
Just as stated in the quote above, you only become a better investor by being on the streets. Successful investors have a solid financial foundation; a foundation molded on the streets. On the streets, you learn from your own experience. Successful investors build up their financial base by attending seminars, reading books and journals, learning from a mentor and listening to tapes; after which they go out on their own to gain street experience.
Average investors try to hone their investing skills while still striving to avoid loss. Successful investors on the other hand know that experience come with losing money and learning from the loss.
15. Successful investors are passionate about investing
"Men of means look at making money as a game which they love to play." – J. Paul Getty
Why are you an investor? Your answer to this question will determine if you will be successful in the world of investing or not. A famous author once said this: "if you are going to play a game, choose a game you can play throughout your lifetime and investing is one of such game.”
If you take a look at average investors, they are always after how much they are going to make now but successful investors use delayed gratification and compounding to gain an edge.
"Wealth is only a benefit of the game of money. If you win, the money will be there." – J. Paul Getty
In conclusion, these are the 15 characteristics possessed by every successful investor. If it's your desire to join this league of investors, all you need to do is gradually develop these characters. As a final note, I want to state categorically that becoming a successful investor is within your reach. Just model the masters of the game and you will see yourself improving.
By Ajaero Tony Martins
http://www.goodinvestmentadvice.com
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