Own stocks directly

Own stocks directly instead of mutual funds, also known as unit trusts. There are two reasons why you should try to own stocks directly. First data show that funds generally do not out-perform the overall market over the long run. Secondly funds charge management fees which can take up a large chunk of your returns. The fee might seem little, say 2% of funds managed, … Continue reading Own stocks directly

Understand fatal flaws of Contrarian Trading

The idea is that the best time to buy is when the market is at its most pessimistic, the best time to sell is when the market is very optimistic. In practice, it is hard to tell when investors are very pessimistic or optimistic. In hindsight, we know these points correspond to lows and highs, but looking forward it is harder. For every seller there … Continue reading Understand fatal flaws of Contrarian Trading

Understand fatal flaws of Technical Analysis

One group of people try to identify price changes by looking at historical price trends. Technicians use price charts (so they are also known as Chartists) containing the price data such as the range from high to low, opening and closing prices. This data may be on daily, weekly or monthly, prices may be linear or logarithmic. It is not possible to go into details … Continue reading Understand fatal flaws of Technical Analysis

Understand fatal flaws of Fundamental Analysis

One group of people use Fundamental Analysis to choose stocks to buy or sell. The are called ANALYSTS, and they forecast future share prices based on a company’s expected operating performance, usually the next few quarters’ profit. Estimates of financial results are based on revenue and cost forecasts, supported by industry and country analysis, drive these profit figures. While the process sounds logical, it is … Continue reading Understand fatal flaws of Fundamental Analysis

Buy takeover stocks

Financial researchers have convincingly shown that companies which are taken-over outperform the general market in terms of share price. These companies see their share price rise substantially after the acquisition announcement – the rise may be instantaneous or may occur over a few days or weeks. This rise in most cases is about 30% to 40% during this short period although the rangemay be much … Continue reading Buy takeover stocks

Buy value stocks

One conclusion that financial researchers have convincingly drawn is that value stocks outperform growth stocks in the long run. Value stocks are those that are expected to grow slowly, and typically have a low share price compared with their present earnings (i.e. low Price to Earnings ratio) – this is because investors expect their profit to grow slowly or not at all. Growth stocks have … Continue reading Buy value stocks

Diversify across time

Timing techniques (when to buy or sell) are very popular and many novices believe that they can make tons of money using them, paying good money to learn in the process. Research shows that these techniques are ineffective. Honest old hands will tell you that they are wrong half the time. It is prudent to accept that you cannot time the market. The better alternative … Continue reading Diversify across time

Diversify your portfolio

Research also shows that owning a mix of assets is less risky than holding one asset. This arises because the prices of these assets don’t exactly move in tandem. It is usually applied between asset classes (stocks, bonds, and real estate) and within the stock portfolio (by industry, by geography). Spread your stocks over at least 10 companies. If your investment is large enough, increase … Continue reading Diversify your portfolio

Invest to retire early

From the same level of savings, INVESTING can make a very big difference to your financial position. However, the result is the least controllable among the elements for financial independence. You may be inundated with a lot of advice, some of which might be good, but most of which can be counter-productive. The most important question to ask yourself is: Am I an investor or … Continue reading Invest to retire early