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Seecrets On Investment: Tired Of Making Huge Losses In The Stock Market –
Part 1
By: Stan Seecrets
Over 80% of all individual investors lose money in any given span of ten years.
This figure is likely to be higher, given most people’s reluctance to reveal
their losses. This article provides a broad outline of this financial landscape.
It reflects the author’s personal views as an individual investor and author of
a stock charting software with the experiences learned from the University of
H.K. (hard knocks). Do not consider this article as any form of financial
advice. Financial advice are available from licensed individuals and companies
as required by law in your respective country.
Investment is a statistics game. You win sometimes and you lose most of the
time. To stay ahead, all you have to do is to make sure that your gains are more
than your losses. More importantly, how to limit losses and reduce the mistakes
will be crucial in successful investing.
Take a typical fund manager. Out of ten positions, the fund manager may only win
40% of the time. Say, this manager makes an average return of 20% for each
position. The rest are mistakes, but this manager capped the losses at 10% each.
Do the simple math, and lo and behold, this manager is ahead with gains. This is
a simple example – professional fund managers use complex variations of this
simple theme.
Another example is the venture capitalist. Say, out of ten ventures, only one
succeeded. The successful venture could yield returns of 2000%, perhaps more.
The other nine ventures failed miserably and these investments are written off.
Using this model, the venture capitalist is still ahead.
Headlines, the media, advertising hype.
Most of us are familiar with this typical headline: “Whiz kid makes stock picks
that outperform the market than most fund managers”. When such stories becomes
headline news on the popular media, it is likely that they appear towards the
end of a great bull market. Stories like these typify the misconception that
anyone can pick stocks at random and win all the time.
Perhaps, a more tantalizing advertisement with “How I make 2600% (annualized) on
a winning trade” may make us interested. Any seasoned investor will be able to
provide a handful of trades that has spectacular performance like 50% in a week.
Annualize this and it works out to be 2600% a year. However such trades are few.
There is no one in the world that has such a method or strategy that is
consistent and sustainable.
It is prudent to treat media reports with a critical mind and skepticism.
Rationalizing the possible reasons on why the story appears may provide some
useful and not so obvious insights. For example, if you have a large position in
a stock, then obviously you will only sing praises on why it will outperform its
peers to encourage more buying momentum. The author remembers an analyst private
statement: “I can write fantastic merits about a stock, conversely I can also
write some damning things as well”.
Market gurus, financial astrology, divination.
Joseph Granville, a market technician, started his newsletter (Gransville Market
Letter) in 1963 and is still going strong at age 80+. He was accurate to predict
the market decline in 1976 but was wrong in 1982 and 1995. Given the statistical
nature of investing, he had his successful calls and his fair share of blunders
as well. The redeeming feature of this man must be his willingness to apologize
for his mistakes.
Why do people continue to subscribe to his newsletter? This author suspects that
his loyal customers are those who can form their own opinions and views on the
market but, they are receptive to a different perspective or viewpoint they may
have missed in their own analyzes.
It is the same with other reputable market gurus. It seemed the media and the
public are intolerant of their success rates as being not good enough. The
forecasts of these market gurus should be treated like a tsunami early warning
system. Nine times out of ten, the warning turns out to be false and people
accept it and go own with their normal lives. Every warning is taken seriously
and the costs of taking precautions are minimal. When a warning turns out to be
accurate, it will save lives. It should be the same with these market gurus’
predictions of market crashes. Investors just have to prepare themselves as they
would with an impending tsunami warning.
After seeing a BBC program on Membrane theory, 11-dimensional worlds and
parallel universes, financial astrology, feng-shui and other methods of
divination may have some merit. This author encourages investors to have
open-minds and more importantly, understand the strengths and weaknesses of any
method. By capitalizing on the strengths, one can indeed enjoy the benefits.
The concluding part 2 will provide an outline of fundamental analysis, technical
analysis plus some tips on successful investing.
About the Author:
The author, Stan Seecrets, is a veteran software developer with 25+ years
experience at (
http://www.seecrets.biz) which specializes in protecting digital
assets. He has developed real-time prices delivery systems and has witnessed
stock markets collapse of 1987 and 2000/2001 in real-time. © Copyright 2005, All
rights reserved.
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