Why your share market investing is failing?
Every investor has several characteristics that combine to make them
successful. The degree of success depends on how well you can implement these
and how well your strategy works.
The method investors have for selecting shares that they want in their
portfolio is arguably one of the most important areas of being a successful
investor. For me personally I have stuck to selecting shares that are leading
ie blue chip companies, whose price histories are in a long term uptrend and
that are themselves doing better than the market average.
The next vital component is the trading plan. This doesn’t need to be
overly complex. You just need to know
what you will do if the share price goes up, down or sideways. If you can cover
these three things then you have a contingency for anything the share price can
throw at you. And more importantly you will prevent yourself from reacting to
sudden market fluctuations that happen all of the time.
The trading plan should also incorporate an overall strategy for the
share that you have selected and explain the reasoning behind why you’re doing
what you’re doing ie why you decided to place your order level at this
particular point.
You will need a robust risk management strategy and to be successful in
the long term you will need to implement the strategy. The number of times I’ve
seen people unwilling to action there risk management plan when the share price
reaches their pre-determined value price is a little bit scary.
The above three things are great to have in place but don’t forget that
you must be disciplined in implementing them otherwise you’re setting yourself
up for failure. And you should remember
that to get good at anything you need to practice and you need to gain experience. Champions are made in training. Not on the track.
After identifying these strategic factors you should consider how much
you are willing to outlay on each share. It is important to try and spend the
same amount on each share ie $5000 across a portfolio of 10 shares in different
industries in order to maintain a balanced portfolio.
Finally before deciding to go ahead with any investment you should asses
whether its risk to return is worth it. There is no point risking $1 to try to
make 50 cents. Over my investing
lifespan I have stuck with a ratio of 1:3.
For every dollar that I am risking I stand to make at least three or if
I stand to make $3000 from a trade then I am willing to risk $1000 in order to
make it. The reasoning behind this ratio is that no matter how good you are you
will always loose in some of your investments. Having a ratio like this ensures
that when the of the investments pay off they more than compensate for any that
lose.
To recap any successful investor must exhibit these characteristics over
the long term.
Take responsibility for themselves and make their own
decisions. They take the credit for making profit and accept the responsibility
for any losses. They learn from these decisions and improve over time;
Make investment or trading plans and stick to them. They make trading plans based on reliable information in the clear calm light
of day and not emotional reactions that may emanate from the panic or euphoria
of the share market. And, they stick to their plan;
Assess the Risk/Return Ratio of each trade. They only
enter into investments that offer reasonable potential for profit;
Manage the risk of every investment . And never lose
too much;
Allow for contingencies in the plan so they know what
they are going to do if the share being traded goes up, down or sideways in
price. The share price can do nothing else.
But you can do what you planned.
The plan then dictates the actions and prevents unprofitable emotional
reactions;
Only put their money into financially secure
companies ;
Buy shares when they are cheap and sell those that
are expensive relative to their price trends;
Only trade in companies whose prices are in trending
up;
Trade unemotionally and have the discipline to trade
the plan. They plan the trade and trade the plan;
Keep taking money out of the market. You only make
money when you sell shares; and
Have sufficient confidence that has been gained from
experience.
BY EDSON CANO
