Friday, 30 September 2016
Thursday, 29 September 2016
Quote for the day
"Self-reverence, self-knowledge, self-control; these three alone lead one to sovereign power." - Alfred Lord Tennyson
Wednesday, 28 September 2016
Quote for the day
"Too many people overvalue what they are not and undervalue what they are." - Malcolm Forbes
Tuesday, 27 September 2016
Debunking myths and the despondent stock market investor
To lose faith in the market after having faced mounting losses on a regular basis is understandable and is in fact a common dilemma faced by many investors. But don't blame the market entirely for bad experiences you've had with your investments.It could be a result of your own misconceptions says Guardian Fund Management's Fund Manager Asanka Jayasekara debunking a few infamous myths on investing in the stock market.
The reason as to why gaining equity exposure is equated to gambling is that people don't understand the reason underlying share price movements.
In the short term, the share price is determined based on demand and supply, which in turn is influenced by temporary trends, such as:changes in foreign investor interest in the market due to global economic and political events,temporary slowdown in the local economy.
For example, when the US FED raised policy rates in December,foreign investors reacted by pulling out of emerging markets, which affected capital markets of emerging economies negatively. Most often, people simply misinterpret short term market volatility as permanent movements.
In the long term, share prices move because of change in business fundamentals pertaining to a particular stock. Mainly, fundamentals are represented by earnings or financial performance of a corporate. That is, there exists a correlation between share price and corporate earnings in the long term, when the value of a share reflects the profitability and growth of a company. You would see this over, say, a 10 year span in the share price of a good company. If a company consistently underperforms financially, it is reflected in the share price as it implies weak fundamentals.
That is, their future growth potential may be low or the company may be in a dying or saturated industry and has not engaged in any innovations.
The graph below actually shows how company earnings track the stock market index in the long term, with the market showing greater volatility.
Figure 1 shows that the movement in aggregate normalized corporate earnings of companies listed in the Colombo Stock Exchange and the All Share Price Index share a positive correlation. Further, the growth in nominal GDP has also been inserted in the Graph to indicate the overall economic direction during the period.
Further, gambling is a zero sum game. That is, the gain of one party is an equal loss to another.
Investing in the stock market is not so, because when an investor puts down his/her money on a company, he/she is buying into an underlying asset. In Gambling, there is no underlying asset.
MYTH 2: MARKETS CAN BE TIMED PERFECTLY.
People often tend to shy away from investing when the market is going through a dull phase.
What they're really doing is waiting for the next rally to start so that they feel there's some assurance that their investment will not fall in value.
In reality this is exactly what happens, as evident by the value of investments made in the market as the rally approaches the peak. But what people don't understand is that in a rally, the initial pickup happens at a rapid pace resulting in a sharp upward spike in share price.
This is especially true in a small market like Sri Lanka where liquidity is limited.Thus, bulk of the price appreciation happens within a very brief period of time(see graph below).
Therefore to actually make a decent gain from a rally you should have been invested at an early stage, or else it may be too late. That is if you wait to time the market (waiting for the right time to invest), there's a lower probability that you'll be able to benefit from an abnormal return.
In conclusion, whilst you should try not to time the market, the time at which you enter and remain invested, matters because your gain depends on it.
So what you should really bother about is the price you are paying for the stock, or to be more precise,whether you are buying at a discount to its real value.
Annual returns of the ASPI
Figure 2 refers to the annual returns of the ASPI from 2000 to 2001. The return for each year has been further broken down as the Best Month in terms of return and the cumulative return of rest of the months. Accordingly, it could be observed that if you are not invested in the market in the best month, your total return would have a devastating impact.
MYTH 3: THE STOCK MARKET IS A PLACE TO EARN A QUICK BUCK
Equity Investors of a company actually share a portion of the company's ownership. Therefore view your stock investments from the perspective of an entrepreneur, waiting for the profits of your business to grow.
That is, if your start a business with your own capital, do you expect to recover your investment in a short time period? The answer is no as it is practically impossible to break even in a matter of days or few months in most cases.
Accordingly, if the same ‘Entrepreneur’ mentality is adopted towards your stock market investments, one would not panic in times of volatility. More often than not, a stock market pullback is an opportunity, not a reason to sell.
The annualised returns shown in Figure 3 are calculated based on monthly returns from January 2000 to June 2016 for 2 year and 5 year rolling periods. This indicates the point that that at longer investor periods, the volatility of returns tend to be lesser in comparison to shorter investor periods.
(Jayasekara is the lead fund manager for Guardian Acuity Equity funds and Ceylon Guardian's key client portfolios. He is a graduate of the Sri Jayawardhanapura University and is a CIMA associate member. He is also a visiting lecturer at the finance department at the Sri Jayawardhanapura University.)
The reason as to why gaining equity exposure is equated to gambling is that people don't understand the reason underlying share price movements.
In the short term, the share price is determined based on demand and supply, which in turn is influenced by temporary trends, such as:changes in foreign investor interest in the market due to global economic and political events,temporary slowdown in the local economy.
For example, when the US FED raised policy rates in December,foreign investors reacted by pulling out of emerging markets, which affected capital markets of emerging economies negatively. Most often, people simply misinterpret short term market volatility as permanent movements.
In the long term, share prices move because of change in business fundamentals pertaining to a particular stock. Mainly, fundamentals are represented by earnings or financial performance of a corporate. That is, there exists a correlation between share price and corporate earnings in the long term, when the value of a share reflects the profitability and growth of a company. You would see this over, say, a 10 year span in the share price of a good company. If a company consistently underperforms financially, it is reflected in the share price as it implies weak fundamentals.
That is, their future growth potential may be low or the company may be in a dying or saturated industry and has not engaged in any innovations.
The graph below actually shows how company earnings track the stock market index in the long term, with the market showing greater volatility.
Figure 1 shows that the movement in aggregate normalized corporate earnings of companies listed in the Colombo Stock Exchange and the All Share Price Index share a positive correlation. Further, the growth in nominal GDP has also been inserted in the Graph to indicate the overall economic direction during the period.
Further, gambling is a zero sum game. That is, the gain of one party is an equal loss to another.
Investing in the stock market is not so, because when an investor puts down his/her money on a company, he/she is buying into an underlying asset. In Gambling, there is no underlying asset.
MYTH 2: MARKETS CAN BE TIMED PERFECTLY.
People often tend to shy away from investing when the market is going through a dull phase.
What they're really doing is waiting for the next rally to start so that they feel there's some assurance that their investment will not fall in value.
In reality this is exactly what happens, as evident by the value of investments made in the market as the rally approaches the peak. But what people don't understand is that in a rally, the initial pickup happens at a rapid pace resulting in a sharp upward spike in share price.
This is especially true in a small market like Sri Lanka where liquidity is limited.Thus, bulk of the price appreciation happens within a very brief period of time(see graph below).
Therefore to actually make a decent gain from a rally you should have been invested at an early stage, or else it may be too late. That is if you wait to time the market (waiting for the right time to invest), there's a lower probability that you'll be able to benefit from an abnormal return.
In conclusion, whilst you should try not to time the market, the time at which you enter and remain invested, matters because your gain depends on it.
So what you should really bother about is the price you are paying for the stock, or to be more precise,whether you are buying at a discount to its real value.
Annual returns of the ASPI
Figure 2 refers to the annual returns of the ASPI from 2000 to 2001. The return for each year has been further broken down as the Best Month in terms of return and the cumulative return of rest of the months. Accordingly, it could be observed that if you are not invested in the market in the best month, your total return would have a devastating impact.
MYTH 3: THE STOCK MARKET IS A PLACE TO EARN A QUICK BUCK
Equity Investors of a company actually share a portion of the company's ownership. Therefore view your stock investments from the perspective of an entrepreneur, waiting for the profits of your business to grow.
That is, if your start a business with your own capital, do you expect to recover your investment in a short time period? The answer is no as it is practically impossible to break even in a matter of days or few months in most cases.
Accordingly, if the same ‘Entrepreneur’ mentality is adopted towards your stock market investments, one would not panic in times of volatility. More often than not, a stock market pullback is an opportunity, not a reason to sell.
The annualised returns shown in Figure 3 are calculated based on monthly returns from January 2000 to June 2016 for 2 year and 5 year rolling periods. This indicates the point that that at longer investor periods, the volatility of returns tend to be lesser in comparison to shorter investor periods.
(Jayasekara is the lead fund manager for Guardian Acuity Equity funds and Ceylon Guardian's key client portfolios. He is a graduate of the Sri Jayawardhanapura University and is a CIMA associate member. He is also a visiting lecturer at the finance department at the Sri Jayawardhanapura University.)
Quote for the day
“A trading philosophy is something that cannot just be transferred from one person to another, it's something that you have to acquire yourself through time and effort.” - Richard Driehaus
Monday, 26 September 2016
Quote for the day
"An invincible determination can accomplish almost anything and in this lies the great distinction between great men and little men." - Thomas Fuller
Sunday, 25 September 2016
52 Ways to Be Rich Without Being Wealthy
Money is only one form of wealth. You’re rich when you realise some of the best things in life are free.
Are You Rich?
- Remain rich in moral character
- Marry the love of your life
- Stand up for your beliefs
- Achieve life balance
- Enjoy quality family time
- Cherish freedom
- Feel comfortable being yourself
- Make a difference in others’ lives
- Follow your own advice
- Build win-win relationships
- Strive to become a better person
- Make memories
- Be a trusted friend
- Remain honest with yourself
- Enjoy a passion for life
- Say “yes” because you want to
- Raise good kids
- Live with honor
- Make others feel special
- Have faith in something greater than yourself
- Live within your means
- Do things for the right reasons
- Earn the respect of your peers
- Enjoy being guilt-free
- Have a small bucket list
- Work hard and achieve your goals
- Have a sense of purpose
- Think the grass is greener on your side of the fence
- See the good in others
- Feel proud of yourself
- Beat the odds
- Form your own opinions
- Receive a clean bill of health
- Have few regrets
- Be happy for the success of others
- Feel comfortable being alone
- Give thanks for the little things
- Enjoy worry-free days
- Celebrate many anniversaries
- Achieve success with humility and grace
- Be a positive role model
- Live in the present
- Believe
- Maintain self-respect
- Bring out the best in others
- Build close friendships
- Fulfill your potential
- Help those in need
- Rarely worry about making ends meet
- Remain self-reliant
- Give more than you take
- Go to bed with a clear conscience
Are You Rich?
Source: http://www.franksonnenbergonline.com/
Quote for the day
"To be successful you have to be selfish, or else you never achieve. And once you get to your highest level, then you have to be unselfish. Stay reachable. Stay in touch. Don't isolate." - Michael Jordan
Saturday, 24 September 2016
25 of Life’s Most Powerful Lessons
It’s important for you to believe in yourself, stand up for the principles that you hold dear, and see the world for what it really is, not what you want it to be. Don’t be afraid to embrace change, confront uncertainty, and face the unknown. For these things are ways of life. Make sure to be bold, follow your heart, and dream BIG. As Walt Disney once said, “All our dreams can come true if we have the courage to pursue them.”
Here are 25 of Life’s Most Powerful Lessons excerpted from Follow Your Conscience:
Here are 25 of Life’s Most Powerful Lessons excerpted from Follow Your Conscience:
- “Listen to your conscience. That’s why you have one.”
- “Happiness is not a matter of intensity, but of balance.”
- “Your reputation is like a shadow, following you wherever you go.”
- “You gain more by making others look good than by singing your own praises.”
- “Many people are actually poor because the only thing they have is money.”
- “The purpose of life is a life of purpose.”
- “Life is the sum of all the choices that you make.”
- “Everything has a price, but not everything should be for sale.”
- “Tough times say a lot about us. Let’s hope that they say only good things about you!”
- “Respect is priceless. Earn it every day!”
- “While toxic food is bad for your health and well-being, so are negative and unethical people.”
- “Where you’ve come from is less important than where you’re going.”
- “Little footsteps in the sand usually follow larger ones, so watch where you step.”
- “The goal shouldn’t always be adding, but also subtracting from daily tasks.”
- “Trust takes a long time to develop, but can be lost in the blink of an eye.”
- “It takes many years to become an overnight success.”
- “Your promise should be as binding as a contract.”
- “When kids grow up, they hear their parent’s voice in their subconscious. Make sure it’s positive.”
- “Paradise is not a place, it’s a state of mind.”
- “Saying ‘no’ to one idea enables you to say ‘yes’ to another.”
- “While determination builds character, quitting is habit forming.”
- “Always tell the truth –– or the truth will tell on you.”
- “Don’t be satisfied to be a bystander in your life story.”
- “Real wealth is achieved by appreciating what you already have in life.”
- “Believe in the impossible. And then prove it CAN be done.”
Source: www.franksonnenbergonline.com/
Quote for the day
"We are what we repeatedly do. Excellence, then, is not an act, but a habit." - Aristotle
Friday, 23 September 2016
Quote for the day
"One of the most tragic things I know about human nature is that all of us tend to put off living. We are all dreaming of some magical rose garden over the horizon instead of enjoying the roses that are blooming outside our windows today." - Dale Carnegie
Thursday, 22 September 2016
Maximising wealth using equity investments
Maximising investment returns requires due consideration of a wide range of aspects including valuations, yield, price determination, volatility, liquidity and more. Equity investments have historically played a pivotal role in maximizing portfolio return.
In this article, Chartered Financial Analyst Alistair Corera, shares his thoughts on using equity investments to maximise wealth. He holds more than 20 years of experience in investment management and is presently Orion Fund Management's Director and Portfolio Manager.Excerpts from the interview.
Q:Why should investors consider including different asset classes in their portfolio?
There are several reasons as to why an investor should contemplate the idea of having multiple asset classes in his/her portfolio. One is to have a blend of different features in your portfolio that each asset class can provide. For an instance, the return from equities is predominately from capital appreciation. The timing of the return is also uncertain. On the other hand, the return from fixed income investments such as fixed deposits or bonds is mainly in the form of interest or yield. You also have greater certainty about the timing of returns in these types of investments. By mixing both asset classes you can design a portfolio that provides you a desired level of yield, at the desired frequency and also benefit from capital appreciation.
Another reason would be to reduce the volatility of returns of your portfolio. Each asset class will respond differently to varying conditions that one typically encounters. As an example, rising interest rates tend to be unfavorable for equities. On the contrary, hikes in interest rates would be favorable for cash or short term fixed income investments. By having a mix of asset classes, the volatility of your combined portfolio value will be less than in a situation where your portfolio consists of a single asset class.
Q: Is portfolio management important to maximise wealth in the long run?
The important thing is to have a goal and a plan. A portfolio management approach instills that. A plan or an investment policy provides a context against which you take investment decisions. It also provides a basis to monitor and evaluate progress. If you are not grounded with a plan, the tendency is to react to all news and events in a haphazard manner, and not in line with your particular needs. This is particularly true if you consider the long run because many events that occur on a daily basis have no relevance to the long term outcome of your portfolio. Many people find themselves reacting, at a cost to themselves, whereas the correct decision in some instances would have been to let it pass.
Q:How has equity performed historically compared to other asset classes?
Historically, equity returns from a diversified portfolio have been attractive and higher than returns from fixed income when considering over long periods. The performance of the All Share Price Index (ASPI) is the common measure of average returns from listed equity. From 1985, when the ASPI was launched, the annualized rate of return to date is approximately 16%. This is higher than fixed income. Comparisons with other asset classes are not straightforward because of the lack of data.
Q:What are the main characteristics of equity that an investor should be aware of when allocating investments?
A key characteristic to be aware of should be volatility of equity returns. For instance, while the annualized return for the 31 years since 1985 has been approximately 16%, you have sub periods where the returns have been dramatically different from the long term average. If you take the 4 year period from Sep 2001 to Sep 2005, the market returned 57% a year. The seven year period from 1994 to 2001 on the other hand delivered a negative return of 15% on an annualized basis. An investor should be aware of this and ensure that he/she can handle this volatility. They should be able to handle it both in terms of individual financial circumstances and mindset. For example, if a person needs an assured income every year to meet living expenses, equity will not be suitable to meet that need.
It is also helpful to understand the makeup of equity returns. It has two components – dividend yield and capital appreciation. The dividend yield has averaged around 2% – 5% per annum with the remainder by way of capital appreciation. The dividend component is fairly stable over time, while the capital appreciation component is not.
Q:Can you advise how to determine the extent of equity allocation for an Investor?
At a basic level, the factors that mainly play a role in this decision is your age, individual financial circumstance and risk appetite. I would suggest that an investor secures his/her day-to-day income requirement with a source that is not volatile. For most, this is met by your salary and/or capital set aside in regular interest bearing investments.
A certain amount could also be set aside for emergency needs invested in a non-volatile asset.
Once this component is secured, the allocation to equity can be calibrated based on age, risk appetite, goals and time horizons.
There is an old rule of thumb that suggests your equity exposure should be ‘100 less your age'.
Hence a 40 year old should have 60% of his savings in equity. It is doubtful this can be applied broadly as ultimately, it is a very individual specific process.
Q:Any tips on how to pick outperformers?
Outperformance happens when the market consensus underestimates.
For instance, market consensus expects earnings of a company to grow by 10% over the next 5 years. The stock is then priced to reflect that. However, the company actually delivers growth twice as high.
The price of the stock will increase at a faster pace to reflect that, which delivers outperformance. Investors targeting outperformance seek to identify such opportunities beforehand.
Opportunities for investments that will outperform also present themselves when sentiment is bad and investors are acting irrationally.
Situations, where there are structural changes is another area that may see investments that will outperform.
Q: Equity is a risky asset class. How can an investor curtail risk?
When equity is termed as a risky asset in finance literature, it refers to price volatility. You can have an upward moving stock price, but it moves in a jagged manner so it is volatile.
The down moves, when you are experiencing it will show up as a loss, but this is not permanent and will reverse when the up move kicks in. This has to be differentiated from an investment that goes bad and you lose completely.
Avoiding permanent loss involves being careful with the companies you invest in. Price volatility on the other hand is characteristic of equity that you can’t completely avoid.
What is required is managing it by suitable diversification, and controlling equity exposure.
Q:Why should an investor seek professional fund manager advice to manage one's investments?
While the theory is relatively straightforward, execution is not. The hardest part is controlling emotions and preventing them from distorting your investment decision making. For instance, it is very uncomfortable to buy in a falling market although that is when the better opportunities maybe available.
Q:What are the main points to consider when selecting a good fund manager?
The most important thing is to understanding their investment process and investment approach. This is not an easy task as Sri Lanka does not have organizations providing fund rankings and fund research, which would typically address this need.
In the absence of that investors will have to rely on the reputation of promoters and track record. Assessing track record should be over a reasonably long period that ideally covers different market conditions.
(“Investment Insights” is a collaboration between the CSE and CFA Society Sri Lanka to enhance investor knowledge in capital market investing. All posts are the opinion of the interviewee and should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the Colombo Stock Exchange, CFA Institute, CFA Society Sri Lanka or the interviewee’s employer or organization.)
In this article, Chartered Financial Analyst Alistair Corera, shares his thoughts on using equity investments to maximise wealth. He holds more than 20 years of experience in investment management and is presently Orion Fund Management's Director and Portfolio Manager.Excerpts from the interview.
Q:Why should investors consider including different asset classes in their portfolio?
There are several reasons as to why an investor should contemplate the idea of having multiple asset classes in his/her portfolio. One is to have a blend of different features in your portfolio that each asset class can provide. For an instance, the return from equities is predominately from capital appreciation. The timing of the return is also uncertain. On the other hand, the return from fixed income investments such as fixed deposits or bonds is mainly in the form of interest or yield. You also have greater certainty about the timing of returns in these types of investments. By mixing both asset classes you can design a portfolio that provides you a desired level of yield, at the desired frequency and also benefit from capital appreciation.
Another reason would be to reduce the volatility of returns of your portfolio. Each asset class will respond differently to varying conditions that one typically encounters. As an example, rising interest rates tend to be unfavorable for equities. On the contrary, hikes in interest rates would be favorable for cash or short term fixed income investments. By having a mix of asset classes, the volatility of your combined portfolio value will be less than in a situation where your portfolio consists of a single asset class.
Q: Is portfolio management important to maximise wealth in the long run?
The important thing is to have a goal and a plan. A portfolio management approach instills that. A plan or an investment policy provides a context against which you take investment decisions. It also provides a basis to monitor and evaluate progress. If you are not grounded with a plan, the tendency is to react to all news and events in a haphazard manner, and not in line with your particular needs. This is particularly true if you consider the long run because many events that occur on a daily basis have no relevance to the long term outcome of your portfolio. Many people find themselves reacting, at a cost to themselves, whereas the correct decision in some instances would have been to let it pass.
Q:How has equity performed historically compared to other asset classes?
Historically, equity returns from a diversified portfolio have been attractive and higher than returns from fixed income when considering over long periods. The performance of the All Share Price Index (ASPI) is the common measure of average returns from listed equity. From 1985, when the ASPI was launched, the annualized rate of return to date is approximately 16%. This is higher than fixed income. Comparisons with other asset classes are not straightforward because of the lack of data.
Q:What are the main characteristics of equity that an investor should be aware of when allocating investments?
A key characteristic to be aware of should be volatility of equity returns. For instance, while the annualized return for the 31 years since 1985 has been approximately 16%, you have sub periods where the returns have been dramatically different from the long term average. If you take the 4 year period from Sep 2001 to Sep 2005, the market returned 57% a year. The seven year period from 1994 to 2001 on the other hand delivered a negative return of 15% on an annualized basis. An investor should be aware of this and ensure that he/she can handle this volatility. They should be able to handle it both in terms of individual financial circumstances and mindset. For example, if a person needs an assured income every year to meet living expenses, equity will not be suitable to meet that need.
It is also helpful to understand the makeup of equity returns. It has two components – dividend yield and capital appreciation. The dividend yield has averaged around 2% – 5% per annum with the remainder by way of capital appreciation. The dividend component is fairly stable over time, while the capital appreciation component is not.
Q:Can you advise how to determine the extent of equity allocation for an Investor?
At a basic level, the factors that mainly play a role in this decision is your age, individual financial circumstance and risk appetite. I would suggest that an investor secures his/her day-to-day income requirement with a source that is not volatile. For most, this is met by your salary and/or capital set aside in regular interest bearing investments.
A certain amount could also be set aside for emergency needs invested in a non-volatile asset.
Once this component is secured, the allocation to equity can be calibrated based on age, risk appetite, goals and time horizons.
There is an old rule of thumb that suggests your equity exposure should be ‘100 less your age'.
Hence a 40 year old should have 60% of his savings in equity. It is doubtful this can be applied broadly as ultimately, it is a very individual specific process.
Q:Any tips on how to pick outperformers?
Outperformance happens when the market consensus underestimates.
For instance, market consensus expects earnings of a company to grow by 10% over the next 5 years. The stock is then priced to reflect that. However, the company actually delivers growth twice as high.
The price of the stock will increase at a faster pace to reflect that, which delivers outperformance. Investors targeting outperformance seek to identify such opportunities beforehand.
Opportunities for investments that will outperform also present themselves when sentiment is bad and investors are acting irrationally.
Situations, where there are structural changes is another area that may see investments that will outperform.
Q: Equity is a risky asset class. How can an investor curtail risk?
When equity is termed as a risky asset in finance literature, it refers to price volatility. You can have an upward moving stock price, but it moves in a jagged manner so it is volatile.
The down moves, when you are experiencing it will show up as a loss, but this is not permanent and will reverse when the up move kicks in. This has to be differentiated from an investment that goes bad and you lose completely.
Avoiding permanent loss involves being careful with the companies you invest in. Price volatility on the other hand is characteristic of equity that you can’t completely avoid.
What is required is managing it by suitable diversification, and controlling equity exposure.
Q:Why should an investor seek professional fund manager advice to manage one's investments?
While the theory is relatively straightforward, execution is not. The hardest part is controlling emotions and preventing them from distorting your investment decision making. For instance, it is very uncomfortable to buy in a falling market although that is when the better opportunities maybe available.
Q:What are the main points to consider when selecting a good fund manager?
The most important thing is to understanding their investment process and investment approach. This is not an easy task as Sri Lanka does not have organizations providing fund rankings and fund research, which would typically address this need.
In the absence of that investors will have to rely on the reputation of promoters and track record. Assessing track record should be over a reasonably long period that ideally covers different market conditions.
(“Investment Insights” is a collaboration between the CSE and CFA Society Sri Lanka to enhance investor knowledge in capital market investing. All posts are the opinion of the interviewee and should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of the Colombo Stock Exchange, CFA Institute, CFA Society Sri Lanka or the interviewee’s employer or organization.)
www.dailynews.lk
Quotes for the day
"Prosperity isn't found by avoiding problems, it's found by solving them." - Tim Fargo
Wednesday, 21 September 2016
Tuesday, 20 September 2016
Quote for the day
"A strong positive mental attitude will create more miracles than any wonder drug." - Patricia Neal
Monday, 19 September 2016
Quote for the day
"Take chances, make mistakes. That's how you grow. Pain nourishes your courage. You have to fail in order to practice being brave." - Mary Tyler Moore
Sunday, 18 September 2016
Top 5 Popular Trading Strategies
By Dean Peters-Wright
This article will show you some of the most common trading strategies and also how you can analyse the pros and cons of each one to decide the best one for your personal trading style.
The top five strategies that we will cover are as follows:
Momentum
Momentum trading is much less concerned with ‘precise’ entries and more with the force and continuation of the move. Traders are not looking for the price to pull back or break out from any specific price, but merely to start moving more or less in the direction of the prevailing trend.
This type of trading is fundamentally based but also relies heavily on indicators such as moving averages and oscillators to give trading signals.
Traders will use momentum based strategies when they perceive a long term move to be taking place on the asset that they are trading. For example, if there is a significant change in the fundamentals of a nation that will result in an interest rate change, this will cause investors to act and begin buying or selling the currency of that nation in line with those changes. Other examples include geo political events that remain in place for many months and sometimes even years.
During these significant shifts, professional traders will be looking to trade these currencies over the long term, often holding their positions over a period of weeks and months.
Because of the longer term nature of this strategy traders are not as concerned about entry points and simply wait until minor technical analysis gives them an opportunity to profit from the move. A popular indicator for this type of trading includes the 200 period moving average, and very often traders will look for price to break above or below this moving average in line with the anticipated move, at which point they will enter the market and hold their positions.
Exits are generally governed by fundamentals in a similar way to entries, with traders watching the economic and geo political events very closely before deciding which trading approach they will take and how they will manage those ongoing positions.
Position trading
Position trading takes the momentum style of trading and further eliminates the importance of the entry. The primary concern of the trader here is to be in the market when the price does eventually make its move. Traders often build their position into the market over a period of days or weeks as the price moves. The main component of this strategy is a confidence in the prevailing fundamental conditions driving the price, and the anticipation that the market will eventually move in the desired direction.
This sounds extremely similar to the momentum style of trading but the key difference is the approach to entries that position traders very often take. When the market is expected to move in a single direction over a sustained period of time, traders will very often begin trading that asset almost immediately in extremely small sizes.
The reason for this is because during the long term move there will almost certainly be short term retracements and temporary adjustments to sentiment. These events will provide traders with multiple opportunities to trade the asset as it pulls back against the overall move.
These will be used as opportunities to trade at a better price and build up their position in the market while these temporary events cause confusion and loss of confidence. Position traders are effectively taking advantage of human emotions which causes most traders to liquidate positions and take profits during short term market moves against the prevailing trend.
Because the market moves in this way, traders will try and add to their positions as the price gives better prices so that they can gradually build up a better average entry price. This also means that their initial positions may enter sustained periods of draw down, which is why each individual position is usually extremely small in relation to the amount of capital they are trading.
Position trading should only be carried out on assets that have a very clear fundamental sentiment that is likely to last over the approaching weeks or months. Having the confidence to not only hold your position, but add to it is the key to this style of trading.
This article will show you some of the most common trading strategies and also how you can analyse the pros and cons of each one to decide the best one for your personal trading style.
The top five strategies that we will cover are as follows:
Breakouts
Breakouts are one of the most common techniques used in the market to trade. They consist of identifying a key price level and then buying or selling as the price breaks that pre determined level. The expectation is that if the price has enough force to break the level then it will continue to move in that direction.
The concept of a breakout is relatively simple and requires a moderate understanding of support and resistance.
When the market is trending and moving strongly in one direction, breakout trading ensures that you never miss the move.
Generally breakouts are used when the market is already at or near the extreme high / lows of the recent past. The expectation is that the price will continue moving with the trend and actually break the extreme high and continue. With this in mind, to effectively take the trade we simply need to place an order just above the high or just below the low so that the trade automatically gets entered when the price moves. These are called limit orders.
It is very important to avoid trading breakouts when the market is not trending because this will result in false trades that result in losses. The reason for these losses is that the market does not have the momentum to continue the move beyond the extreme highs and lows. When the price hits these areas, it usually then drops back down into the previous range, resulting in losses for any traders trying to hold in the direction of the move.
Retracements
Retracements require a slightly different skill set and revolve around the trader identifying a clear direction for the price to move in and become confident that the price will continue moving in. This strategy is based on the fact that after each move in the expected direction, the price will temporarily reverse as traders take their profits and novice participants attempt to trade in the opposite direction. These pull backs or retracements actually offer professional traders with a much better price at which to enter in the original direction just before the continuation of the move.
When trading retracements support and resistance is also used, as with break outs. Fundamental analysis is also crucial to this type of trading.
When the initial move has taken place traders will be aware of the various price levels that have already been breached in the original move. They pay particular attention to key levels of Support and Resistance and areas on the price chart such as ‘00’ levels. These are the levels that they will look to buy or sell from later on.
Retracements are only used by traders during times when short term sentiment is altered by economic events and news. This news can cause temporary shocks to the market which result in these retracements against the direction of the original move.
The initial reasons for the move may still be in place but the short term event may cause investors to become nervous and take their profits, which in turn causes the retracement. Because the initial conditions remain this then offers other professional investors an opportunity to get back into the move at a better price, which they very often do.
Retracement trading is generally ineffective when there are no clear fundamental reasons for the move in the first place. Therefore if you see a large move but cannot identify a clear fundamental reason for this move the direction can change quickly and what seems to be a retracement can actually turn out to be a new move in the opposite direction. This will result in losses for anyone trying to trade in line with the original move.
Reversals
Reversals are generally used by technical based traders during times of little fundamental activity. At these times the markets tend to ‘range’ or move sideways with no clear direction. Traders look for key price levels that they can use to trade directly from in expectation of a ‘bounce’ when price hits it. These bounces provide small, quick opportunities to take a profit from low volume market activity.
Again, the tools used for reversal trading are almost identical to those used in the previous strategies and include support and resistance and fundamental analysis.
Before trading reversals, you must be sure that there is no major news expected to be released during that session, and that no key monetary policy makers are speaking or making comments to the press. These events can trigger moves that will result in losses on your short term trading.
Once the fundamental picture is clear, we then need to focus on the technical analysis and in particular the support and resistance levels that are near the current price.
Common levels used by traders with this type of strategy include, old highs and lows from previous trading sessions, Pivot point levels, Fibonacci levels and areas at which all three of these levels overlap. These overlaps are known as confluences, and these provide excellent areas at which to look for the price to bounce from during the session.
The reactions vary but very often traders will be looking for only a few pips of profit from these reactions, rather than attempting to hold the positions over several trading sessions.
Trading reversals is strictly for times when the market is not trending in a clear direction, and should not be employed blindly during all market sessions as this will dramatically increase the amount of losses you suffer.
Breakouts are one of the most common techniques used in the market to trade. They consist of identifying a key price level and then buying or selling as the price breaks that pre determined level. The expectation is that if the price has enough force to break the level then it will continue to move in that direction.
The concept of a breakout is relatively simple and requires a moderate understanding of support and resistance.
When the market is trending and moving strongly in one direction, breakout trading ensures that you never miss the move.
Generally breakouts are used when the market is already at or near the extreme high / lows of the recent past. The expectation is that the price will continue moving with the trend and actually break the extreme high and continue. With this in mind, to effectively take the trade we simply need to place an order just above the high or just below the low so that the trade automatically gets entered when the price moves. These are called limit orders.
It is very important to avoid trading breakouts when the market is not trending because this will result in false trades that result in losses. The reason for these losses is that the market does not have the momentum to continue the move beyond the extreme highs and lows. When the price hits these areas, it usually then drops back down into the previous range, resulting in losses for any traders trying to hold in the direction of the move.
Retracements
Retracements require a slightly different skill set and revolve around the trader identifying a clear direction for the price to move in and become confident that the price will continue moving in. This strategy is based on the fact that after each move in the expected direction, the price will temporarily reverse as traders take their profits and novice participants attempt to trade in the opposite direction. These pull backs or retracements actually offer professional traders with a much better price at which to enter in the original direction just before the continuation of the move.
When trading retracements support and resistance is also used, as with break outs. Fundamental analysis is also crucial to this type of trading.
When the initial move has taken place traders will be aware of the various price levels that have already been breached in the original move. They pay particular attention to key levels of Support and Resistance and areas on the price chart such as ‘00’ levels. These are the levels that they will look to buy or sell from later on.
Retracements are only used by traders during times when short term sentiment is altered by economic events and news. This news can cause temporary shocks to the market which result in these retracements against the direction of the original move.
The initial reasons for the move may still be in place but the short term event may cause investors to become nervous and take their profits, which in turn causes the retracement. Because the initial conditions remain this then offers other professional investors an opportunity to get back into the move at a better price, which they very often do.
Retracement trading is generally ineffective when there are no clear fundamental reasons for the move in the first place. Therefore if you see a large move but cannot identify a clear fundamental reason for this move the direction can change quickly and what seems to be a retracement can actually turn out to be a new move in the opposite direction. This will result in losses for anyone trying to trade in line with the original move.
Reversals
Reversals are generally used by technical based traders during times of little fundamental activity. At these times the markets tend to ‘range’ or move sideways with no clear direction. Traders look for key price levels that they can use to trade directly from in expectation of a ‘bounce’ when price hits it. These bounces provide small, quick opportunities to take a profit from low volume market activity.
Again, the tools used for reversal trading are almost identical to those used in the previous strategies and include support and resistance and fundamental analysis.
Before trading reversals, you must be sure that there is no major news expected to be released during that session, and that no key monetary policy makers are speaking or making comments to the press. These events can trigger moves that will result in losses on your short term trading.
Once the fundamental picture is clear, we then need to focus on the technical analysis and in particular the support and resistance levels that are near the current price.
Common levels used by traders with this type of strategy include, old highs and lows from previous trading sessions, Pivot point levels, Fibonacci levels and areas at which all three of these levels overlap. These overlaps are known as confluences, and these provide excellent areas at which to look for the price to bounce from during the session.
The reactions vary but very often traders will be looking for only a few pips of profit from these reactions, rather than attempting to hold the positions over several trading sessions.
Trading reversals is strictly for times when the market is not trending in a clear direction, and should not be employed blindly during all market sessions as this will dramatically increase the amount of losses you suffer.
Momentum
Momentum trading is much less concerned with ‘precise’ entries and more with the force and continuation of the move. Traders are not looking for the price to pull back or break out from any specific price, but merely to start moving more or less in the direction of the prevailing trend.
This type of trading is fundamentally based but also relies heavily on indicators such as moving averages and oscillators to give trading signals.
Traders will use momentum based strategies when they perceive a long term move to be taking place on the asset that they are trading. For example, if there is a significant change in the fundamentals of a nation that will result in an interest rate change, this will cause investors to act and begin buying or selling the currency of that nation in line with those changes. Other examples include geo political events that remain in place for many months and sometimes even years.
During these significant shifts, professional traders will be looking to trade these currencies over the long term, often holding their positions over a period of weeks and months.
Because of the longer term nature of this strategy traders are not as concerned about entry points and simply wait until minor technical analysis gives them an opportunity to profit from the move. A popular indicator for this type of trading includes the 200 period moving average, and very often traders will look for price to break above or below this moving average in line with the anticipated move, at which point they will enter the market and hold their positions.
Exits are generally governed by fundamentals in a similar way to entries, with traders watching the economic and geo political events very closely before deciding which trading approach they will take and how they will manage those ongoing positions.
Position trading
Position trading takes the momentum style of trading and further eliminates the importance of the entry. The primary concern of the trader here is to be in the market when the price does eventually make its move. Traders often build their position into the market over a period of days or weeks as the price moves. The main component of this strategy is a confidence in the prevailing fundamental conditions driving the price, and the anticipation that the market will eventually move in the desired direction.
This sounds extremely similar to the momentum style of trading but the key difference is the approach to entries that position traders very often take. When the market is expected to move in a single direction over a sustained period of time, traders will very often begin trading that asset almost immediately in extremely small sizes.
The reason for this is because during the long term move there will almost certainly be short term retracements and temporary adjustments to sentiment. These events will provide traders with multiple opportunities to trade the asset as it pulls back against the overall move.
These will be used as opportunities to trade at a better price and build up their position in the market while these temporary events cause confusion and loss of confidence. Position traders are effectively taking advantage of human emotions which causes most traders to liquidate positions and take profits during short term market moves against the prevailing trend.
Because the market moves in this way, traders will try and add to their positions as the price gives better prices so that they can gradually build up a better average entry price. This also means that their initial positions may enter sustained periods of draw down, which is why each individual position is usually extremely small in relation to the amount of capital they are trading.
Position trading should only be carried out on assets that have a very clear fundamental sentiment that is likely to last over the approaching weeks or months. Having the confidence to not only hold your position, but add to it is the key to this style of trading.
Source: www.tradingmarkets.com/
Saturday, 17 September 2016
Quote for the day
"The only reason we don’t have what we want in life is the reasons we create why we can’t have them." - Tony Robbins
25 Simple Ways to Motivate Yourself
By Henrik Edberg
Feeling less than motivated all too often? I do. Well, perhaps not too often. But sometimes I just feel really lazy and unmotivated.
Want some practical solutions to that universal motivation-problem? Here are 25 of them.
6. Do the toughest task first. This will ease a lot of your day-to-day worries and boost your self-confidence for the rest of the day.
7. Start slow. Instead of jumping into something at full speed start slow. When you do that your mind will not visualise the task as something hard that you have to do fast, fast, fast. If your mind sees such things guess what often happens? Yep, you don’t get started. Actually getting started, even if it’s at a slow pace, is a whole lot better than not getting started at all.
8. Compare yourself with yourself. Not with others. Comparing what you have and your results to what other people have and have accomplished can really kill your motivation. There are always people ahead of you. Most likely quite a bit of people. And a few of them are miles ahead. So focus on you. On your results. And how you can and have improved them.
9. Remember your successes. And let them flow through your mind instead of your failures. Write down your successes. Consider using a journal of some kind since it’s easy to forget your successes.
10. Act like your heroes. Read about them, watch them, listen to them. Discover what they did that was special and what made them tick. But remember that they are people just like us. So let them inspire you instead of looking up at them admiringly.
11. Remember to have fun. Or create fun in a task. Then you’ll stay motivated to do and finish it.
12. Get out of your comfort zone. Face your challenges to get a real boost of motivation.
13. Don’t fear failure. Instead redefine it as feedback and as a natural part of a successful life. As Michael Jordan said:
“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
Also, try to find the valuable lesson(s) in each of your failures. Ask yourself: What can I learn from this?
14. Do some research on what you are about to do. Then your expectations will be more grounded in reality and you can also get good hints on what difficulties that you might run into along the way. Managing your expectations can lower the often almost explosive initial enthusiasm. But it can also lessen the lack of motivation that usually follows when most of that enthusiasm has dissipated.
When you know what has happened to others in similar situations – what path they have walked – you can adapt and try their solutions (and personal variations of those) and your own. This makes the worries and challenges easier to handle. Both emotionally – since you know at least some of the things that will happen and that others have lived through it before – and practically.
15. Figure out why you're doing something. If you don’t know or don’t have good enough reason to do something then it will be hard to get it done. Do things that you have really strong reasons to do. If you want to do something then figure out a good reason to do it. If you can’t find one consider dropping it and doing something that you have a good reason to do instead.
16. Write down your goals and reasons for working towards them. Tape them on your wall, computer or bathroom mirror. Then you’ll be reminded throughout the day and it becomes easier to stay on track and stay focused.
17. Take The Positivist Challenge! Learn to think more positively most of the time. Learn to let to go of negative threads of thought before they have a chance to take hold of you. You might not be able to be positive all the time no matter what happens. But I think most of us can improve on our positive thinking and the results it can lead us to. Perhaps more than you realise right now.
18. Cut down on TV. Do you watch it too much? Watch less of what they are doing in TV-land and do more of what you want to do in life.
Feeling less than motivated all too often? I do. Well, perhaps not too often. But sometimes I just feel really lazy and unmotivated.
Want some practical solutions to that universal motivation-problem? Here are 25 of them.
Try a handful.
I’m sure you’ll find at least one or two that do just that among these suggestions.
1. Make a deal with yourself. Good for overcoming procrastination and getting things done. You can make the deal small or large. You simple tell yourself something like: When I’m done with this chapter/these reports I can take a walk in the park and enjoy an ice-cream.
2. Act like it. If you don’t feel motivated or enthusiastic then act like it. The strange thing is that within a few minutes you actually start to feel motivated or enthusiastic for real.
3. Ask uplifting questions in the morning. Here’s what you do; every morning ask yourself five empowering three-part questions this way:
What am I ______ about in my life right now?
What about it makes me _______?
How does it make me feel?
Put in your own value in the blank space. For instance, a couple of my questions are:
What am I happy about in my life right now?
I’m sure you’ll find at least one or two that do just that among these suggestions.
1. Make a deal with yourself. Good for overcoming procrastination and getting things done. You can make the deal small or large. You simple tell yourself something like: When I’m done with this chapter/these reports I can take a walk in the park and enjoy an ice-cream.
2. Act like it. If you don’t feel motivated or enthusiastic then act like it. The strange thing is that within a few minutes you actually start to feel motivated or enthusiastic for real.
3. Ask uplifting questions in the morning. Here’s what you do; every morning ask yourself five empowering three-part questions this way:
What am I ______ about in my life right now?
What about it makes me _______?
How does it make me feel?
Put in your own value in the blank space. For instance, a couple of my questions are:
What am I happy about in my life right now?
What am I excited about in my life right now?
It’s important that you really feel how it makes you feel. When I think about the last part about what makes me happy right now I really feel it. These morning questions are great because the way they are set up makes you recognize things you take for granted and then they really get you to feel those positive feelings.
4. Move the goalposts. Set a large and specific goal. This will motivate you much more than small goals. A big goal has a big effect and can create a lot of motivation.
5. Do something small and create a flow. Just clean your desk. Or pay your bills. Or wash the dishes. You just need to get started. When you have finished that small task you’ll feel more alert and ready to go do the next thing. You just to get started to get motivated. So if you really don’t feel like doing anything, start with something small and work your way out up.
It’s important that you really feel how it makes you feel. When I think about the last part about what makes me happy right now I really feel it. These morning questions are great because the way they are set up makes you recognize things you take for granted and then they really get you to feel those positive feelings.
4. Move the goalposts. Set a large and specific goal. This will motivate you much more than small goals. A big goal has a big effect and can create a lot of motivation.
5. Do something small and create a flow. Just clean your desk. Or pay your bills. Or wash the dishes. You just need to get started. When you have finished that small task you’ll feel more alert and ready to go do the next thing. You just to get started to get motivated. So if you really don’t feel like doing anything, start with something small and work your way out up.
6. Do the toughest task first. This will ease a lot of your day-to-day worries and boost your self-confidence for the rest of the day.
7. Start slow. Instead of jumping into something at full speed start slow. When you do that your mind will not visualise the task as something hard that you have to do fast, fast, fast. If your mind sees such things guess what often happens? Yep, you don’t get started. Actually getting started, even if it’s at a slow pace, is a whole lot better than not getting started at all.
8. Compare yourself with yourself. Not with others. Comparing what you have and your results to what other people have and have accomplished can really kill your motivation. There are always people ahead of you. Most likely quite a bit of people. And a few of them are miles ahead. So focus on you. On your results. And how you can and have improved them.
Reviewing your results is important so you see where you have gone wrong in the past to avoid similar missteps further on. But it’s also important because it’s a great motivator to see how much you have improved and how far you have come. Often you can be pleasantly surprised when you do such a review.
9. Remember your successes. And let them flow through your mind instead of your failures. Write down your successes. Consider using a journal of some kind since it’s easy to forget your successes.
10. Act like your heroes. Read about them, watch them, listen to them. Discover what they did that was special and what made them tick. But remember that they are people just like us. So let them inspire you instead of looking up at them admiringly.
11. Remember to have fun. Or create fun in a task. Then you’ll stay motivated to do and finish it.
12. Get out of your comfort zone. Face your challenges to get a real boost of motivation.
13. Don’t fear failure. Instead redefine it as feedback and as a natural part of a successful life. As Michael Jordan said:
“I’ve missed more than 9000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
Also, try to find the valuable lesson(s) in each of your failures. Ask yourself: What can I learn from this?
14. Do some research on what you are about to do. Then your expectations will be more grounded in reality and you can also get good hints on what difficulties that you might run into along the way. Managing your expectations can lower the often almost explosive initial enthusiasm. But it can also lessen the lack of motivation that usually follows when most of that enthusiasm has dissipated.
When you know what has happened to others in similar situations – what path they have walked – you can adapt and try their solutions (and personal variations of those) and your own. This makes the worries and challenges easier to handle. Both emotionally – since you know at least some of the things that will happen and that others have lived through it before – and practically.
15. Figure out why you're doing something. If you don’t know or don’t have good enough reason to do something then it will be hard to get it done. Do things that you have really strong reasons to do. If you want to do something then figure out a good reason to do it. If you can’t find one consider dropping it and doing something that you have a good reason to do instead.
16. Write down your goals and reasons for working towards them. Tape them on your wall, computer or bathroom mirror. Then you’ll be reminded throughout the day and it becomes easier to stay on track and stay focused.
17. Take The Positivist Challenge! Learn to think more positively most of the time. Learn to let to go of negative threads of thought before they have a chance to take hold of you. You might not be able to be positive all the time no matter what happens. But I think most of us can improve on our positive thinking and the results it can lead us to. Perhaps more than you realise right now.
18. Cut down on TV. Do you watch it too much? Watch less of what they are doing in TV-land and do more of what you want to do in life.
Break down your task or project into small steps. And just start with focusing on that first small step. When you are done move on to the next and just focus on that one. The small successes will keep your motivation up and keeping your focus away from the big picture stops you from becoming overwhelmed and discouraged. It’s amazing how much you can get done if you follow this simple method.
20. Reprogram your information intake. Program out negative and cynical thoughts from the media and society. Reduce your information intake. Then program in positive news and entertainment, more of your own thoughts and useful information such as personal growth tapes and books. Be selective and keep it positive.
21. Make use of your creativity. Take out a piece of paper. Write at the top of the page what area in your life you would like to have more ideas about. Perhaps you want ideas to earn more money or become a healthier person. Then brainstorm until you have written down 20 ideas on that topic. Then try for 10 more. Not all ideas will be good. But some will. And as you make use of your creativity you not only discover useful ideas. You also discover just how creative you can be if you try and how motivating and great that feels.
22. Find out what makes you happy. Then do that. As much as you want or can.
23. Listen while you’re on the move. Build your own small library of motivational/personal development tapes. Listen to them while you are driving, riding the bus or your bike, while you are out running or walking.
24. Think outside your box. Don’t imagine the future from the box of what you have now. Just because your mind is in box of previous experiences doesn’t mean that´s the limits of the world. Your possibilities are much larger. Create the future from the now and from nothing rather than your past to experience bigger changes with fewer limitations than you would if you created it from what you can see from your box.
25. Make each day count. We don’t have all the time in the world. So focus on today and do the things you really want to do.
20. Reprogram your information intake. Program out negative and cynical thoughts from the media and society. Reduce your information intake. Then program in positive news and entertainment, more of your own thoughts and useful information such as personal growth tapes and books. Be selective and keep it positive.
21. Make use of your creativity. Take out a piece of paper. Write at the top of the page what area in your life you would like to have more ideas about. Perhaps you want ideas to earn more money or become a healthier person. Then brainstorm until you have written down 20 ideas on that topic. Then try for 10 more. Not all ideas will be good. But some will. And as you make use of your creativity you not only discover useful ideas. You also discover just how creative you can be if you try and how motivating and great that feels.
22. Find out what makes you happy. Then do that. As much as you want or can.
23. Listen while you’re on the move. Build your own small library of motivational/personal development tapes. Listen to them while you are driving, riding the bus or your bike, while you are out running or walking.
24. Think outside your box. Don’t imagine the future from the box of what you have now. Just because your mind is in box of previous experiences doesn’t mean that´s the limits of the world. Your possibilities are much larger. Create the future from the now and from nothing rather than your past to experience bigger changes with fewer limitations than you would if you created it from what you can see from your box.
25. Make each day count. We don’t have all the time in the world. So focus on today and do the things you really want to do.
Source: http://www.positivityblog.com/
Quote for the day
“Sometimes, the most brilliant and intelligent minds do not shine in standardized tests because they do not have standardized minds.” - Diane Ravitch
Friday, 16 September 2016
12 Things Really Wealthy People Did to Get Ahead
Want to get ahead financially and in your career? Follow in the footsteps of giants.
By Sujan Patel
2. Always know their net worth.
At any given time, a person with substantial amounts of money can tell you exactly how much they have. Most of us know how much is in the bank, give or take a few dollars. The super rich, however, know the ins and outs of every part of their wealth; and if there is something they aren't sure of, one phone call separates them from an immediate answer.
The real difference here isn't the knowledge itself -- it's the amount of time the super rich spend working with their money. Financial speaker Brian Tracy argues this distinction, claiming, "The average adult spends two to three hours each month studying and thinking about their money, usually at bill-paying time. The average self-made millionaire, by contrast, spends 20 to 30 hours per month thinking about, studying, and planning his finances."
3. Broaden the bookshelf instead of a buying a bigger television.
According to Thomas Corley, 78 percent of poor people veg out on reality TV, while only 6 percent of rich people spend their time on this type of programming. What do they do instead? Read books. Whether they're increasing their financial knowledge or studying another subject that'll increase their earning power, wealthy people know that education is the key to a successful financial future.
4. Hang out with people they want to become.
As the saying goes, you become the average of the five people you associate with most often. Wealthy people don't hang around people who make poor financial choices. It's not because they look down on others of less net worth, rather that they realize they will become more like the people they spend time around, so they choose their friends and acquaintances wisely.
5. Focus on the big picture.
Good things will happen and bad things will happen, and you won't know when either is coming. But wealthy people take advantage of this fact. They celebrate the amazing opportunities life has to offer, yet they waste little time being upset about things they can't change. Rather, those with substantial wealth choose to set their gaze on the long run and work toward creating an enjoyable future for themselves.
6. Face their problems.
Many people run from their problems, especially financial ones. They bury their heads in the sand, hoping issues such as bad debt or an underwater mortgage will disappear. Wealthy people face their problems head on. While it may sting in the short run, rich people recognise that your overall loss of money and time can be diminished if you face up to the problem sooner.
7. Constantly develop new skills and techniques.
Last year's methods and tricks are outdated. The only thing that remains the same year after year is this: everything changes, and it changes quickly. Those in the bracket of high net worth educate themselves and learn the newest techniques and breakthroughs. This allows them to build their wealth even further by generating a sustainable competitive edge.
8. Step outside their comfort zone.
You can only go so far and make so much money within a certain arena. Every situation has a ceiling -- and it's usually padded with a comfort zone. In order to build their fortune, wealthy people know they'll have to expand their horizons and step beyond what they've known thus far. But they don't just think about it -- they do it, taking the uncomfortable steps and entering a world of new opportunities.
9. Say "no" when it's appropriate.
Not every deal is a good deal. Those who are serious about their money, even when the stakes are high, have the confidence to walk away from poor investments -- and will walk away alone if no one agrees with them.
10. Set goals and visualise.
Goals that are never set are rarely achieved. Rich people document their goals and follow through by tracking their progress. They know exactly what they want to achieve and what they must do to get there.
11. Network, network, network.
It's no secret that most great deals come from those you know. Rich people take advantage of this and network like crazy. It has been said many times -- and I completely agree -- if you want to become rich, never each lunch alone.
12. Take risks, but never gamble.
You can't make money by playing it safe, but you need to exercise caution as well. The wealthy aren't afraid to take calculated risks that have the potential to pay huge dividends -- but not before spending a lot of time researching and looking into the deal. Rich people are all about investing, but only if the risk and potential return validates it.
By Sujan Patel
Everyone wants to achieve wealth and financial freedom, but very few actually go on to rack up the seven-figure bank accounts they dream about. In fact, it's commonly suggested that Americans don't identify as poor; instead, they see themselves as temporarily embarrassed millionaires.
So what gives? How can it be that so many people list "being wealthy" as a goal, when American consumers owe more than $11.85 trillion in household debt (up 1.7 percent from last year)?
It turns out, becoming wealthy may be less about your inherent intelligence (or, for that matter, about your inheritance), and more about the habits you practice and the mindset you maintain. Want to know how the wealthy got ahead? Check out the following 12 traits of the super rich:
So what gives? How can it be that so many people list "being wealthy" as a goal, when American consumers owe more than $11.85 trillion in household debt (up 1.7 percent from last year)?
It turns out, becoming wealthy may be less about your inherent intelligence (or, for that matter, about your inheritance), and more about the habits you practice and the mindset you maintain. Want to know how the wealthy got ahead? Check out the following 12 traits of the super rich:
1. Play the money game to win.
So many people dream of having enough money to "become financially comfortable." Unfortunately, this is too vague to work in most cases. Wealthy people have a specific endgame in mind -- to become rich and stay rich. They take on projects and tangible ventures that result in real-life wealth. You have to think like a rich person to become one.
So many people dream of having enough money to "become financially comfortable." Unfortunately, this is too vague to work in most cases. Wealthy people have a specific endgame in mind -- to become rich and stay rich. They take on projects and tangible ventures that result in real-life wealth. You have to think like a rich person to become one.
2. Always know their net worth.
At any given time, a person with substantial amounts of money can tell you exactly how much they have. Most of us know how much is in the bank, give or take a few dollars. The super rich, however, know the ins and outs of every part of their wealth; and if there is something they aren't sure of, one phone call separates them from an immediate answer.
The real difference here isn't the knowledge itself -- it's the amount of time the super rich spend working with their money. Financial speaker Brian Tracy argues this distinction, claiming, "The average adult spends two to three hours each month studying and thinking about their money, usually at bill-paying time. The average self-made millionaire, by contrast, spends 20 to 30 hours per month thinking about, studying, and planning his finances."
3. Broaden the bookshelf instead of a buying a bigger television.
According to Thomas Corley, 78 percent of poor people veg out on reality TV, while only 6 percent of rich people spend their time on this type of programming. What do they do instead? Read books. Whether they're increasing their financial knowledge or studying another subject that'll increase their earning power, wealthy people know that education is the key to a successful financial future.
4. Hang out with people they want to become.
As the saying goes, you become the average of the five people you associate with most often. Wealthy people don't hang around people who make poor financial choices. It's not because they look down on others of less net worth, rather that they realize they will become more like the people they spend time around, so they choose their friends and acquaintances wisely.
5. Focus on the big picture.
Good things will happen and bad things will happen, and you won't know when either is coming. But wealthy people take advantage of this fact. They celebrate the amazing opportunities life has to offer, yet they waste little time being upset about things they can't change. Rather, those with substantial wealth choose to set their gaze on the long run and work toward creating an enjoyable future for themselves.
6. Face their problems.
Many people run from their problems, especially financial ones. They bury their heads in the sand, hoping issues such as bad debt or an underwater mortgage will disappear. Wealthy people face their problems head on. While it may sting in the short run, rich people recognise that your overall loss of money and time can be diminished if you face up to the problem sooner.
7. Constantly develop new skills and techniques.
Last year's methods and tricks are outdated. The only thing that remains the same year after year is this: everything changes, and it changes quickly. Those in the bracket of high net worth educate themselves and learn the newest techniques and breakthroughs. This allows them to build their wealth even further by generating a sustainable competitive edge.
8. Step outside their comfort zone.
You can only go so far and make so much money within a certain arena. Every situation has a ceiling -- and it's usually padded with a comfort zone. In order to build their fortune, wealthy people know they'll have to expand their horizons and step beyond what they've known thus far. But they don't just think about it -- they do it, taking the uncomfortable steps and entering a world of new opportunities.
9. Say "no" when it's appropriate.
Not every deal is a good deal. Those who are serious about their money, even when the stakes are high, have the confidence to walk away from poor investments -- and will walk away alone if no one agrees with them.
10. Set goals and visualise.
Goals that are never set are rarely achieved. Rich people document their goals and follow through by tracking their progress. They know exactly what they want to achieve and what they must do to get there.
11. Network, network, network.
It's no secret that most great deals come from those you know. Rich people take advantage of this and network like crazy. It has been said many times -- and I completely agree -- if you want to become rich, never each lunch alone.
12. Take risks, but never gamble.
You can't make money by playing it safe, but you need to exercise caution as well. The wealthy aren't afraid to take calculated risks that have the potential to pay huge dividends -- but not before spending a lot of time researching and looking into the deal. Rich people are all about investing, but only if the risk and potential return validates it.
Source: www.inc.com
Quote for the day
“It isn’t what you have, or who you are, or where you are, or what you are doing that makes you happy or unhappy. It is what you think about.” - Dale Carnegie
Thursday, 15 September 2016
Quote for the day
"Do you want to know who you are? Don't ask. Act! Action will delineate and define you." - Thomas Jefferson
Wednesday, 14 September 2016
Quote for the day
"The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails." - William Arthur Ward
Tuesday, 13 September 2016
Quote for the day
"It isn't the head but the stomach that determines the fate of the stockpicker." - Peter Lynch
Monday, 12 September 2016
Quote for the day
"What the superior man seeks is in himself; what the small man seeks is in others." - Confusius
Sunday, 11 September 2016
20 Brutal Truths About Life No One Wants to Admit
By Matthew Jones
Time is your most valuable asset--you need to prioritise how you spend it.
It's much easier to talk about the weather, sports, and celebrities than your fear of mortality.
Unfortunately, the more time you spend pretending that ultimate truths don't exist, the more time you waste not being your authentic self and getting the most out of every precious second.
Time, not money, is your most valuable asset. Allow the list below to ignite the spark of motivation you need to make better use of the time you have on this planet.
Sometimes we need to head into the storm to appreciate the light and have a renewed passion for the beauty of life.
Here are 20 brutal truths that every single person needs to hear.
2. Everyone you love is going to die, and you don't know when.
This truth may be saddening at first, but it also gives you permission to make amends with past difficulties and re-establish meaningful relationships with important figures in your life.
3. Your material wealth won't make you a better or happier person.
Even if you're one of the lucky ones who achieves his or her materialistic dreams, money only amplifies that which was already present.
5. Donating money does less than donating time.
Giving your time is a way to change your perception and create a memory for yourself and others that will last forever.
6. You can't make everyone happy, and if you try, you'll lose yourself.
Stop trying to please, and start respecting your values, principles, and autonomy.
7. You can't be perfect, and holding yourself to unrealistic standards creates suffering.
Many perfectionists have unrelenting inner critics that are full of so much rage and self-hate that it tears them apart inside. Fight back against that negative voice, amplify your intuition, and start challenging your unrealistic standards.
8. Your thoughts are less important than your feelings and your feelings need acknowledgment.
Intellectually thinking through your problems isn't as helpful as expressing the feelings that create your difficulties in the first place.
9. Your actions speak louder than your words, so you need to hold yourself accountable.
Be responsible and take actions that increase positivity and love.
10. Your achievements and successes won't matter on your death bed.
When your time has come to transition from this reality, you won't be thinking about that raise; you'll be thinking about the relationships you've made--so start acting accordingly.
12. Now is the only time that matters, so stop wasting it by ruminating on the past or planning the future.
You can't control the past, and you can't predict the future, and trying to do so only removes you from the one thing you can control--the present.
13. Nobody cares how difficult your life is, and you are the author of your life's story.
Stop looking for people to give you sympathy and start creating the life story you want to read.
14. Your words are more important than your thoughts, so start inspiring people.
Words have the power to oppress, hurt, and shame, but they also have the power to liberate and inspire--start using them more wisely.
16. It's not what happens, it's how you react that matters.
Train yourself to respond in a way that leads to better outcomes.
18. Pleasure is temporary and fleeting, so stop chasing fireworks and start building a constellation.
Don't settle for an ego boost right now when you can delay gratification and experience deeper fulfilment.
19. Your ambition means nothing without execution--it's time to put in the work.
If you want to change the world, then go out there and do it!
20. Time is your most valuable asset--you need to prioritise how you spend it.
You have the power and responsibility to decide what you do with the time you have, so choose wisely.
Time is your most valuable asset--you need to prioritise how you spend it.
It's much easier to talk about the weather, sports, and celebrities than your fear of mortality.
Unfortunately, the more time you spend pretending that ultimate truths don't exist, the more time you waste not being your authentic self and getting the most out of every precious second.
Time, not money, is your most valuable asset. Allow the list below to ignite the spark of motivation you need to make better use of the time you have on this planet.
Sometimes we need to head into the storm to appreciate the light and have a renewed passion for the beauty of life.
Here are 20 brutal truths that every single person needs to hear.
1. You're going to die and you have no idea when.
Stop pretending that you're invincible. Acknowledge the fact of your own mortality, and then start structuring your life in a more meaningful way.
Stop pretending that you're invincible. Acknowledge the fact of your own mortality, and then start structuring your life in a more meaningful way.
2. Everyone you love is going to die, and you don't know when.
This truth may be saddening at first, but it also gives you permission to make amends with past difficulties and re-establish meaningful relationships with important figures in your life.
3. Your material wealth won't make you a better or happier person.
Even if you're one of the lucky ones who achieves his or her materialistic dreams, money only amplifies that which was already present.
4. Your obsession with finding happiness is what prevents its attainment.
Happiness is always present in your life--it's just a matter of connecting to it and allowing it to flow through you that's challenging.
Happiness is always present in your life--it's just a matter of connecting to it and allowing it to flow through you that's challenging.
5. Donating money does less than donating time.
Giving your time is a way to change your perception and create a memory for yourself and others that will last forever.
6. You can't make everyone happy, and if you try, you'll lose yourself.
Stop trying to please, and start respecting your values, principles, and autonomy.
7. You can't be perfect, and holding yourself to unrealistic standards creates suffering.
Many perfectionists have unrelenting inner critics that are full of so much rage and self-hate that it tears them apart inside. Fight back against that negative voice, amplify your intuition, and start challenging your unrealistic standards.
8. Your thoughts are less important than your feelings and your feelings need acknowledgment.
Intellectually thinking through your problems isn't as helpful as expressing the feelings that create your difficulties in the first place.
9. Your actions speak louder than your words, so you need to hold yourself accountable.
Be responsible and take actions that increase positivity and love.
10. Your achievements and successes won't matter on your death bed.
When your time has come to transition from this reality, you won't be thinking about that raise; you'll be thinking about the relationships you've made--so start acting accordingly.
11. Your talent means nothing without consistent effort and practice.
Some of the most talented people in the world never move out from their parent's basement.
Some of the most talented people in the world never move out from their parent's basement.
12. Now is the only time that matters, so stop wasting it by ruminating on the past or planning the future.
You can't control the past, and you can't predict the future, and trying to do so only removes you from the one thing you can control--the present.
13. Nobody cares how difficult your life is, and you are the author of your life's story.
Stop looking for people to give you sympathy and start creating the life story you want to read.
14. Your words are more important than your thoughts, so start inspiring people.
Words have the power to oppress, hurt, and shame, but they also have the power to liberate and inspire--start using them more wisely.
15. Investing in yourself isn't selfish. It's the most worthwhile thing you can do.
You have to put on your own gas mask to save the person sitting right next to you.
You have to put on your own gas mask to save the person sitting right next to you.
16. It's not what happens, it's how you react that matters.
Train yourself to respond in a way that leads to better outcomes.
17. You need to improve your relationships to have lasting happiness.
Relationships have a greater impact on your wellbeing and happiness than your income or your occupation, so make sure you give your relationship the attention and work it deserves.
Relationships have a greater impact on your wellbeing and happiness than your income or your occupation, so make sure you give your relationship the attention and work it deserves.
18. Pleasure is temporary and fleeting, so stop chasing fireworks and start building a constellation.
Don't settle for an ego boost right now when you can delay gratification and experience deeper fulfilment.
19. Your ambition means nothing without execution--it's time to put in the work.
If you want to change the world, then go out there and do it!
20. Time is your most valuable asset--you need to prioritise how you spend it.
You have the power and responsibility to decide what you do with the time you have, so choose wisely.
Source: www.inc.com
Quote for the day
"Talent is God given. Be humble. Fame is man-given. Be grateful. Conceit is self-given. Be careful." - John Wooden
Saturday, 10 September 2016
Quote for the day
"Investment success accrues not so much to the brilliant as to the disciplined." - William J. Bernstein
Friday, 9 September 2016
Quote for the day
"Choosing to be positive and having a grateful attitude is going to determine how you're going to live your life." - Joel Osteen
Thursday, 8 September 2016
Quote for the day
"Success is peace of mind which is a direct result of self-satisfaction in knowing you did your best to become the best you are capable of becoming." - John Wooden
Wednesday, 7 September 2016
Tuesday, 6 September 2016
Quote for the day
"The greater our knowledge increases the more our ignorance unfolds." - John F. Kennedy
Monday, 5 September 2016
Quote for the day
"Be who you are and say what you feel because those who mind don't matter and those who matter don't mind." "Don't cry because it's over. Smile because it happened." - Dr. Seuss
Sunday, 4 September 2016
20 Mental Trading Edges
By Steve Burns
When I asked “What kind of psychological edge do you have in your trading?” in my Facebook trading group I had a lot of great answers. Here are a compilation of many of their great answers.
Here are the 20 mental trading edges that a trader can use in their battle for profitability in the markets.
When I asked “What kind of psychological edge do you have in your trading?” in my Facebook trading group I had a lot of great answers. Here are a compilation of many of their great answers.
Here are the 20 mental trading edges that a trader can use in their battle for profitability in the markets.
- #1 goal is capital protection
- Focus on following a process
- Rarely committing trading errors
- Discipline
- Focus
- Trading with the predominant trend instead of your opinion
- Using entry and exit signals instead of emotions
- The goal is trading with discipline not trying to make money in every trade
- No regrets on a trade that followed your plan
- Patience
- Look at charts of the next highest timeframe
- Trade for capital appreciation not to pay monthly bills
- Trading your own capital
- Having realistic trading return expectations
- Previous trade, irrespective of profit or loss has no influence on next trade – (Srinath Madas)
- Trading with a position size that keeps your emotions out of your process
- Living a healthy lifestyle
- Living a balanced life
- You know that you are the weakest link in the trading process
- “Tons and tons of evidence that the models work over time as long as risk management criteria is adhered to.” – Richard Weissman
Source: www.newtraderu.com
Quote for the day
"When it is obvious that the goals cannot be reached, don't adjust the goals, adjust the action steps." - Confucius
Saturday, 3 September 2016
10 Things People Who Are Mentally Tough Do
Mental strength involves more than just having willpower. It requires the habits of hard work and commitment.
By Lolly Daskal
Mental toughness is the ability to perform at a high level when the stakes are at their highest. It takes focus and determination to see your way through any circumstance or situation.
Whether you're undertaking an arduous task or bouncing back from an epic failure, mental toughness means you don't allow the situation to overwhelm or overthrow you.
It means you know how to manage your thoughts and behavior to keep them aimed on the results you want.
Those who are unstoppable through difficult circumstances are likely to have invested time and effort building their mental strength through good habits of mind.
Here are 10 habits we would all do well to emulate.
1. Control what you can before it controls you.
We cannot control many things, but we're always in control of our thinking. Negative thoughts and worry leave less energy for creative solutions. Negativity won't prevent trouble--in fact, it makes it harder to persevere through tough times. The first principle of mental toughness is to banish negativity.
2. Replace negative thoughts with productive thoughts.
The ability to stay in a tough spot takes an enormous amount of tenacity and determination. It's always tempting to ignore the difficulty or find a way around it--but those measures are temporary. Mentally tough people know how to be comfortable in discomfort. Successful people fail, all the time, because success involves risk. And when they do fail, they face the situation and push through.
4. Stay committed but be flexible.
When you develop your ability to change your action plan as things evolve, that agility will help you in tough times. A significant part of mental toughness is knowing when to be flexible and when to hold on. When you are flexible with action plans, you can explore alternative actions without sacrificing your goals or core values.
5. Push yourself past your potential.
Waiting can be frustrating for people with a goal, but mental toughness includes patience--with events, with others, and even with yourself. By all means, keep things moving as much as you can, but when you're tempted by impatience, redirect yourself into positivity.
7. Become aware enough to get outside of your mind and observe yourself.
Mental toughness requires a deep understanding of what makes you tick, of who you are and why you do what you do. If you develop a high degree of self-awareness, you can observe yourself in way that gives you a central focal point of self. From there, you begin building on your strengths and shoring up your weaknesses.
8. Think of yourself as a work in progress.
Mental strength is a process, not a destination. If you can accept your imperfections as you work to correct them, keeping an open heart and open mind with whatever comes your way, you're on the right track. There is always room to grow and develop, and some challenges will be more difficult than others, but looking at those things from the perspective of the overall process helps you stay focused.
9. Visualise what you want to achieve.
Mentally tough people don't just fantasise; they spend time visualising what they want and do everything in their power to make it happen. That includes seeing yourself managing obstacles and working through challenges. If you want to achieve it, you first have to be able to see it.
10. It's not about winning or losing but learning and growing.
By Lolly Daskal
Mental toughness is the ability to perform at a high level when the stakes are at their highest. It takes focus and determination to see your way through any circumstance or situation.
Whether you're undertaking an arduous task or bouncing back from an epic failure, mental toughness means you don't allow the situation to overwhelm or overthrow you.
It means you know how to manage your thoughts and behavior to keep them aimed on the results you want.
Those who are unstoppable through difficult circumstances are likely to have invested time and effort building their mental strength through good habits of mind.
Here are 10 habits we would all do well to emulate.
1. Control what you can before it controls you.
We cannot control many things, but we're always in control of our thinking. Negative thoughts and worry leave less energy for creative solutions. Negativity won't prevent trouble--in fact, it makes it harder to persevere through tough times. The first principle of mental toughness is to banish negativity.
2. Replace negative thoughts with productive thoughts.
Now that you've eliminated negativity, the next step is to replace the negative thoughts with positive productive thoughts. Make a habit of awareness: Listen carefully to the things you're telling yourself. If you hear something negative, stop in that moment and find a positive counter thought. If negativity is deeply ingrained, you may have to do this many, many times before positivity takes hold, but if you keep at it, eventually it will become your automatic response.
3. When the going gets tough, stay put.
3. When the going gets tough, stay put.
The ability to stay in a tough spot takes an enormous amount of tenacity and determination. It's always tempting to ignore the difficulty or find a way around it--but those measures are temporary. Mentally tough people know how to be comfortable in discomfort. Successful people fail, all the time, because success involves risk. And when they do fail, they face the situation and push through.
4. Stay committed but be flexible.
When you develop your ability to change your action plan as things evolve, that agility will help you in tough times. A significant part of mental toughness is knowing when to be flexible and when to hold on. When you are flexible with action plans, you can explore alternative actions without sacrificing your goals or core values.
5. Push yourself past your potential.
Successful people know that what got them here is not enough to get them where they want to go. They need the ability to push themselves past their potential. To develop that ability, you have to spend frequent time in your discomfort zone. You have to analyze every failure and every success with this question in mind: "What do I need to learn?" Make every experience a lesson in doing better.
6. Build your capacity for patience.
6. Build your capacity for patience.
Waiting can be frustrating for people with a goal, but mental toughness includes patience--with events, with others, and even with yourself. By all means, keep things moving as much as you can, but when you're tempted by impatience, redirect yourself into positivity.
7. Become aware enough to get outside of your mind and observe yourself.
Mental toughness requires a deep understanding of what makes you tick, of who you are and why you do what you do. If you develop a high degree of self-awareness, you can observe yourself in way that gives you a central focal point of self. From there, you begin building on your strengths and shoring up your weaknesses.
8. Think of yourself as a work in progress.
Mental strength is a process, not a destination. If you can accept your imperfections as you work to correct them, keeping an open heart and open mind with whatever comes your way, you're on the right track. There is always room to grow and develop, and some challenges will be more difficult than others, but looking at those things from the perspective of the overall process helps you stay focused.
9. Visualise what you want to achieve.
Mentally tough people don't just fantasise; they spend time visualising what they want and do everything in their power to make it happen. That includes seeing yourself managing obstacles and working through challenges. If you want to achieve it, you first have to be able to see it.
10. It's not about winning or losing but learning and growing.
The mentally toughest may not always be the winners. But win or lose, they have cultivated the habit of always learning and growing, expanding their skills and finding ways to make themselves more knowledgeable and prepared. To build your toughness, pursue growth--study, read books, take classes, talk to people who have been challenged and have made it.
Mentally tough people are the determined ones, the ones you put your money on to succeed. Start today to build the habits that will put you among them.
Source: www.inc.com
Mentally tough people are the determined ones, the ones you put your money on to succeed. Start today to build the habits that will put you among them.
Source: www.inc.com
Quote for the day
"Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all." - Dale Carnegie
Friday, 2 September 2016
To the despondent stock market investor
To lose faith in the market after having faced mounting losses on a regular basis is understandable and is In-fact a common dilemma faced by many investors. But don’t blame the market entirely for bad experiences you’ve had with your investments.It could be a result of your own misconceptions.Myth #1: Stock market investments are similar to gamblingThe reason as to why gaining equity exposure is equated to gambling is that people don’t understand the reason underlying share price movements. In the short term, the share price is determined based on demand and supply, which in turn is influenced by temporary trends, such as:changes in foreign investor interest in the market due to global economic and political events,temporary slowdown in the local economyetc.
For example, when the US FED raised policy rates in December,foreign investors reacted by pulling out of emerging markets, which affected capital markets of emerging economies negatively. Most often, people simply misinterpret short term market volatility as permanent movements.
In the long term, share prices move because of change in business fundamentals pertaining to a particular stock. Mainly, fundamentals are represented by earnings or financial performance of a corporate. That is, there exists a correlation between share price and corporate earnings in the long term, when the value of a share reflects the profitability and growth of a company. You would see this over, say, a 10 year span in the share price of a good company. If a company consistently under-performs financially, it is reflected in the share price as it implies weak fundamentals. That is, their future growth potential may be low or the company may be in a dying or saturated industry and has not engaged in any innovations etc.
The graph below actually shows how company earnings track the stock market index in the long term, with the market showing greater volatility.
Further, gambling is a zero sum game. That is, the gain of one party is an equal loss to another. Investing in the stock market is not so, because when an investor puts down his/her money on a company, he/she is buying into an underlying asset. In Gambling, there is no underlying asset.
Myth #2: Markets can be timed perfectlyPeople often tend to shy away from investing when the market is going through a dull phase. What they’re really doing is waiting for the next rally to start so that they feel there’s some assurance that their investment will not fall in value. In reality this is exactly what happens, as evident by the value of investments made in the market as the rally approaches the peak. But what people don’t understand is that in a rally, the initial pickup happens at a rapid pace resulting in a sharp upward spike in share price. This is especially true in a small market like Sri Lanka where liquidity is limited.Thus, bulk of the price appreciation happens within a very brief period of time(see graph below).Therefore to actually make a decent gain from a rally you should have been invested at an early stage, or else it may be too late. That is if you wait to time the market (waiting for the right time to invest), there’s a lower probability that you’ll be able to benefit from an abnormal return.
In conclusion, whilst you should try not to time the market, the time at which you enter and remain invested, matters because your gain depends on it. So what you should really bother about is the price you are paying for the stock, or to be more precise,whether you are buying at a discount to its real value.
Myth #3: The stock market is a place to earn a quick buck
Equity Investors of a company actually share a portion of the company’s ownership. Therefore view your stock investments from the perspective of an entrepreneur, waiting for the profits of your business to grow. That is, if your start a business with your own capital, do you expect to recover your investment in a short time period? The answer is no as it is practically impossible to break even in a matter of days or few months in most cases. Accordingly, if the same ‘Entrepreneur’ mentality is adopted towards your stock market investments, one would not panic in times of volatility. More often than not, a stock market pullback is an opportunity, not a reason to sell.
(Asanka Jayasekara is the Lead Fund Manager for Guardian Acuity Equity funds and Ceylon Guardian’s key client portfolios. He has over 9 years of experience in the fields of asset management and investment research. Asanka is a graduate of the University of Sri Jayewardenepura and is an associate member of CIMA (UK). He is also a visiting lecturer at the department of finance, University of Sri Jayewardenepura.)
www.dailymirror.lk
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