Trading Style

Developing an investing style that works for you is an ongoing learning exercise. Less experienced investors often choose higher risk investments because they believe they will bring them up to financial security in a shorter time frame. They may see an advertisement for a CFD seminar, or read a book on options trading, or buy the latest “sure fire” share trading program and decide this can get them out of that job they hate and into the lifestyle they desire. They may also buy into the margin lending / leverage angle looking for such a short cut.

Let me step back here a moment - my point here is about risk. Instead of choosing a lower risk activity the less experienced investor will invariably go for the perceived quick route to riches. Often they have limited resources so they feel the need to grow their investment capital up to a more viable level as fast as they can.

Let me point out something else important here - they are usually very smart and attempt such a pathway with apparently sound analysis. I admire the power of their conviction and ability to take a chance.

I see too many people too afraid to take a chance in life. So they sit in a rut in a job they hate or worse still don’t even leave home or get a job. The unhappy worker can go from home to work and back again wishing they could win the lottery. This lifestyle is fine if you are happy in your work – I refer to those that wish they could escape. People that take a chance to jump in and learn about investing are the part of this group that have the spirit and will to succeed.

I have a purpose to assist all investors, from the highly experienced right down to the inexperienced. Therefore I have to provide a large range of information and communicate same carefully in order to reach my target audience. I have to address all asset classes and now I see a further need to cover divisions within these classes. For instance share trading.

The higher risk end of this asset class is the micro-cap explorer in a fashionable investment wave. We saw such a wave in uranium stocks here in Australia a year or so back. The lowest risk end of this asset class is the heavy weight corporations that generate a stable yield.

Options have deep in the money high cost positions and you may also “invest” in short dated cheapie contracts that are far out of the money – these are deliberately simplistic terms for the sake of education. With options you can take a high risk naked position by betting one way on a move or use a hedge technique to minimize risk. Derivatives are for the experts and producers – caveat emptor – you get my drift I hope. It is not within the scope of this article to fully cover this topic so I have to skip forward.

Investment intelligence takes considerable time for most and is accumulated on a gradient. Caveat Emptor rules the day and it means buyer beware. I have long noticed that “fair” has nothing to do with how the world distributes opportunity, wealth, ability etc but for the sake of the less experienced investor somebody should write a rule book on what investment vehicles are allowed for each level of investing experience.

I have the pleasure of working with seasoned professionals and some highly savvy private investors. The most astute of all have a broad understanding of asset classes and how they interact. They have the ability to interpret over weight investment classes on an ongoing basis and can anticipate where the money flows will naturally head next. They also understand how the larger players in the markets think which is vital due to the weight of their influence in the markets. This is the elite end of investment understanding, knowingness about how it all fits together.

When investors come to the realization that balance sheets are malleable and that P:E ratios change and that an ounce in the ground is not an ounce of bullion or money... they realize that fundamental analysis is an art form as much as technical analysis. I believe in both techniques and use them to mitigate risk however I have to point out they are art forms in that it depends how you interpret the data you are able to collect.

This is also why savvy investors follow management that has a sound track record – they know it to be a fairly reliable measure. They carefully investigate the ground position of the company to establish that a viable deposit may or does exist. I have just pointed to a vast number of areas, pitfalls and concepts to gain understanding of, that I have merely drawn attention to and cannot cover in less than a book. Even then it would still take practice and patience and attention to turn the information into profits on a consistent basis.

Want to learn more about how to improve your investment style? Want to become successful trading the markets? Click here and subscribe to Neil's powerful investment tools and start learning more today!
 
 
Neil Charnock is not a registered investment advisor. He is an experienced private investor who, in addition to his essay publication offerings, has now assembled a highly experienced panel to assist in the presentation of various research information services.  The opinions and statements made in the above publication are the result of extensive research and are believed to be accurate and from reliable sources. The contents are his current opinion only, further more conditions may cause these opinions to change without notice. The insights herein published are made solely for international and educational purposes. The contents in this publication are not to be construed as solicitation or recommendation to be used for formulation of investment decisions in any type of market whatsoever. WARNING share market investment or speculation is a high risk activity. Investors enter such activity at their own risk and must conduct their own due diligence to research and verify all aspects of any investment decision, if necessary seeking competent professional assistance.