The Way to Invest

Ok, so no trader truly enjoys taking a losing trade. But if you want to succeed in this business of day trading, learning to love your losers (or at least accepting them) is one of the most important lessons you can learn. Psychologically, human beings are not well designed for trading financial markets. We hate losing, we hate being wrong, and we get buffeted about by those twin emotions - fear and greed. This leads us into all sorts of self destructive habits. Moving stop losses further out - just to give the trade time to turn round. Or grabbing a profit as soon as it appears - just in case we have to give it back.

The simple fact is that most successful traders lose as many, more likely more, trades as they win. What separates them from the rest is their ability to cut a losing position and run a winner for as long as possible. The arithmetic is simple. If your average winner is twice the size of your average loser, then you can be wrong on 50% of your trades and still make very good money.

In fact, you can be wrong 66% of the time and still break even. Improve the ratio by more than two to one and you can make massive amounts of money in the markets. Unless you can learn the art of letting winners run and cutting your losers short, you will never get those big winners that make the difference, and you will never reach that magical relationship where your average win is at least twice as big as your average loss. This fundamental concept holds true no matter what time frame you trade and whether you’re a day trader, swing trader, or even if hold your trades for over a year. (more…)

Popularity: 18% [?]

Myself and Joni Kikil, our portfolio manager have sat down with around 100 investors over the last 6 weeks, and a common theme throughout has been investors not being sure what returns on their investment they are achieving, and therefore their ideas on what properties are performing best are often not accurate.

By looking at many varied portfolios it is amazing to see all the different strategies and performances of different portfolios.

What return would I be looking for across the board? I would be looking for a minimum of 30% returns per annum on investment ie my equity to increase by a minimum of 30% per annum.

So if you have a portfolio worth £1 million with £300,000 in equity, you would be looking for your equity to have risen to £390,000, ie your portfolio to be worth a minimum of £1.09 million, assuming a neutral cashflow, this is crucial, as if you have had negative cashflow you will require a higher return on capital growth, vice versa if you have had a positive cashflow, you may not require quite as high capital growth. (more…)

Popularity: 54% [?]

I’ve never been a big proponent of emotion investing, but given the number of phone calls this past week, I thought now might be a good time to address it.

Buying stocks is pretty easy. People do it all the time. Knowing when to sell is something else entirely and most investors miss the boat on this one. The talking heads remind us daily that selling shouldn’t be an emotional process. No kidding.

(Note: Most of the talking heads don’t own any stock or mutual funds at all. Those that espouse the most are ones who have their money in money market funds and CDs. They want you to heed their wisdom, but these folks don’t eat their own cooking.)

Professional traders and investors use an array of tools to set selling objectives. Sometimes they work and sometimes they don’t. Trust me, I know this from experience. I’ve had a number of stops jumped recently and have the scars to prove it. I use a number of charts and technical indicators to set selling points on both positions and the entire portfolio. Sometimes this works like a charm and sometimes it doesn’t. The one thing that I don’t do is to let my emotions get in the way of things. I trust the numbers period. (more…)

Popularity: 13% [?]