When we asked Josef Schachter of Schachter Asset Management at the 2012 MoneyTalks World Outlook Conference what the biggest mistake investors make was, he told us that not taking a sense of ownership for their investing decisions was high on that list The idea of handing one’s money over to an advisor should be one that is taken quite seriously. Even though some advisors or brokers have a “halo effect” – it is much more important to understand what they are doing with your money.
If you do want to direct your own investing, the idea of “buying what you know about” is sound advice when deciding to invest in companies or sectors because you are much more likely to understand what is or is not a realistic opportunity. When starting out solo in the markets, it’s best to start slowly. Setting aside a small amount to begin trading with is a good way to understand how trading and investing works, but be prepared to pay “tuition” to the market while you learn. The good part about the “tuition” is that you can decide up front how much you want to pay, and unlike many Ivy League schools, how much you pay in tuition doesn’t really translate into the quality of your education.
When looking at the universe of stocks, beginner or long-time investors sometimes make some interesting “decisions”. We talked to Ryan Irvine, President & CEO of Keystone Financial Publishing Corp, at the MoneyTalks 2012 World Outlook Conference for his take on the biggest mistake investors make.
According to Irvine, focusing on the stock symbol instead of the underlying business is a mistake many investors make. Stock symbols are just that: symbols. Even though investors are buying a stock via the symbol what they’re paying for is a business. In his opinion, it pays to get to know what it is about a business that makes it a strong business.
What does he look for? Three of the many things he looks at when doing his research are: a strong balance sheet (i.e. more assets than liabilities), positive cash flow (are they bringing in cash?) and sustainable growth. One other very important factor that weighs in is paying a “reasonable” price – and that is where the science gives way to the art – because what seems reasonable today may change tomorrow and is the trickiest part of the fundamental approach. For that reason, asking the simple question “do I really understand the business I’m buying?” is a good way to figure out if you’re paying the right price now and for the future.
If there is one thing that the stock market has no shortage of, it’s opinions. At this year’s 2012 World Outlook Conference hosted by Money Talks’ Michael Campbell, the only thing in greater supply than those opinions was the demand of the people who wanted to hear them.
Attendees at this annual investor conference got to hear approaches varying from market astrology and seasonal equinox tracking to cold hard statistics on sovereign debt. Even though the speakers may have painted a picture of doom and gloom, their experience on being able to profit from the situation is what drew people in. Some speakers, such as Keystone Financial Publishing’s Ryan Irvine kept it simple by stating “to beat the market you can’t be the market.” To sift through opposing opinions, however, is not easy especially when you hear “opinions” such as “the market could go up or down from here.”
Which way is up?
Much of the time you have to be the ultimate judge, and make decisions based on “the facts”. Josef Schachter’s presentation was full of useful, publicly accessible “facts” about the mess the US economy is in; Don Vialoux presented his “facts” about seasonal trends in the market and how they consistently show up and influence stock prices and Martin Armstrong gave his forecasts on the way the current “facts” about the economy will play out over time.
So how can one separate news from noise? It’s not easy. The first thing to understand is that opposing opinions are exactly what make a market the place to decide on what something’s worth. There really is no substitute for doing your own homework, either on the companies or asset classes being talked about, or doing your homework on the people giving you their opinion on where to park your capital. Investment conferences such as these offer a great opportunity to hear some informed opinions and hear speakers give their take on the world.
The Bottom Line: Follow the Law of the Investment Jungle
To have a long shelf life in the markets is not an easy thing – some think you have to be a great timer, some believe you need to see beyond the hype and some believe you need to trade the hype. Whatever the case, long time trader Mark Leibovit, in spite of the accolades he’s earned, says he’s just fortunate to be a “survivor” of the markets showing that unless you see the market as a place to eat or be eaten, chances are you’re on the menu.
With so many people talking about technical analysis and using stock charts to help make trading and investing decisions, here are some good tutorials to get your feet wet with some of the key concepts and terms used in technical approaches.
Top marks go to the folks at Interactive Brokers for preparing this handy introduction to technical analysis:
It almost seems so obvious that businesses should know who their customers are. In the real world, many small businesses can get to know their customers’ buying habits and taste, and they even might get to be on a first name basis with them. As companies get bigger, they don’t see customers per se, they see statistics about their customers, such as what gender they are, where they live, what kinds of products are they buying and at what times. Big or small, it pays to know who your customers are and what they want so that, as a great trader (read: middle man or middle woman), you can more effectively exchange your goods for your customer’s cash. An interesting ‘quirk’ of the stock market is that your customer can also be your competitor.
Even though knowing exactly who your customer is just as crucial for the do-it-yourself investor as it is for any other business, the reality of online trading makes this infinitely more challenging. Your “customers” are just numbers and letters on a screen. You have no idea on who they are or what their buying habits are. All you really see are share prices either rising or falling, and from there you can infer that there is either increasing interest in a stock or decreasing interest at any particular price on any given day. And as unsatisfying as that is, millions of people around the world base their stock trading decisions simply on what they are inferring from movements in stock prices. What separates the great traders from the rest of the herd is the understanding what their customers are looking for.