Step 12.Investitsionnye ideas for experienced investors

Step 12.Investitsionnye ideas for experienced investors

The five main confessions that we will never hear from any of the investment "wise man", appeared on television
1. I have no clue why technical analysis has anything to explain.
2. I do not understand the difference between the rated "above average" and "accumulate".
3. Of course, the strategy of following the index exceeds the rates of return "prediction" of the market, but it does not get a good interview.
4. Most of what I say, I comeup with in the course of the conversation.
5. Our brokerage office makes money the old fashioned way. We just charge a very high price to customers.
Derivative financial instruments, synthetic option strategies, downlink trend, the 50-day moving averages, Elliot Wave Theory ... Yes, in investing, there are many complex, difficult to study those who, luckily for you, most of them are complete nonsense.
You can breathe a sigh of relief because at this point, we do not talk in detail about most of these "advanced" concepts. Instead, we discuss some intricacies of the market, worth mentioning (options, one-day trading), tools that bring some good times (technical analysis), as well as some strategies that you might want to implement in their practice (for trade margins and short sale).
Options
Let's talk about the option "Call" and "put". From the options we usually keep away, and soon explain why. But first, let's see how they work.
Options "call" give you the right to buy a certain number of shares at a specified price before a certain date - usually within a few months. Options "shackles," by contrast, gives you the right to sell.
Suppose you are delighted with the Legal Beagles, a new company providing legal advice on all matters related to pets. Currently, shares of the company traded at $ 75, and you want them to tremendous growth. Examining the financial performance of the company, you may decide to purchase a certain number of its shares. Or you can buy on the stock option.
Suppose you buy a call option in May "call" with an exercise price of $ 80. Now you have the right to buy 100 shares of Legal Beagles $ 80 for each of the third week of May. (And you just paid $ 500, or $ 5 per share, for the right.) If the end of May stock Legal Beagles actually go up in price and will cost $ 95, your plan worked well. You exercise the option by paying for each share for $ 80 instead of $ 95. If you immediately sell the shares, you get $ 15 profit on each share, right? Not really. Do not forget to deduct the price (premium) the option, is $ 5 per share, and take into account brokerage commissions or taxes on short-term operations.
Nevertheless, it would seem that this profit is not bad. Still, remember that most options expire in vain. Shares on which they are based (asset base) can move in the expected direction, but not always, they reach the desired price for a limited time for which the option was discharged. If the third week of May stock Legal Beagles do not rise above $ 80, you are not lucky, and you just lost $ 500 those who paid for the option. In the first week in June shares soar Legal Beagles can be up to $ 120, but you do not help. If you just bought shares of this company and believed in them, instead of buying options, you would be a valuable and long-term asset.
So why do people like so much options? Because of the effect of leverage (gearing). Instead of spending money to buy several of these shares, they may for the same money to buy a lot more options. Instead of paying $ 7,500 for 100 shares of Legal Beagles, you can pay as little as $ 500 for an option giving the right to purchase those same 100 shares. Options allow you to set the position on the shares at a much lower price. However, remember that the position is very definite, if you buy stocks, and very temporary, if you bought the option.
Another option is to use defense of his position. Suppose you bought shares in Legal Beagles $ 75 per share. If you are afraid that their price can fall unexpectedly, you can invest in the option "put", which will give you the right (again temporarily) to sell these shares at a fixed price, no matter at what price they will be at the moment traded on the market. Thus, you can get some protection from the slide. Of course, we'd be surprised what you hold shares in which so little confidence. And would notice that you have to buy new stock options "put" to the extent that the old will expire. These purchases will be eaten, as a result, all the income you expect to get on the shares of Legal Beagles.
Novice investors should not even think about how to communicate with options, and experienced veterans, perhaps, too poosteregutsya deal with them. Buying options, you really just buying time and are dependent on short-term movements of stocks.
One-day trading
We believe that the best way to increase your wealth - this is a good company to buy shares and hold them for several decades. But this is easier said than done. When the stock market soars or falls, or when you hear about the appearance of a stunning company for another, can be difficult to refrain from active buying or selling.
Strategy of "buy and hold" challenged the so-called "day trader" who believe they can earn extra income, following the stock hourly. It becomes a mania, to the extent that, as more people get bored at work regularly from 9 am to 5 pm, and instead they spend time sitting beside the computer, staring at the monitor, buying stocks at a time thousands of dollars, holding them for several hours (or minutes!), and then selling.
People who "invest" in a way, in fact do not. They play games of chance. They are not the owners of the business strengths of companies, accumulating wealth to the extent that, as these companies grow. They hope to be smarter than others. They do not participate in the growth of the American economy, they simply expect to guess better than the neighbor.
You may be thinking to himself: "Very good. But I do not do day-trading. I have been trading on a weekly or monthly trading." Well, read the study by Brad Barber (Brad Barber) and Odin Terrence (Terrance Odean), professor, University of California, Davis, School of Business. They recently scored another nail in the coffin of frequent trading by showing that individual investors, the following strategy to "buy and hold" are generally superior in performance of those who trade frequently.
Barber and one studied the trading of more than 60,000 households with accounts at major brokers with lower commission from 1991 to 1996. They found that the geometric average income earned by the average family, was approximately 15.3%, compared to the average market yield of 17.1%. Not good. And even worse - one-fifth of families, most often traded, earned only 10% of annual income.
Professors concluded that these people have lost market because trading too frequently. The average household replaced 80% of their stock portfolio every year. This means that the portfolio value of $ 10,000 a year were sold and bought shares worth $ 8,000. We're not talking here about small expenditures, because such things as fees and taxes on capital gains, and without that "bite" a very impressive piece of that investment.
The lesson is clear: Investors who consider themselves to long-term owners of quality businesses, more often earn good incomes than those who consider themselves active traders who are trying to predict the market, is rapidly coming into stocks and out of them.
In the words of Barber and Odin, "frequent trading is dangerous to your wealth."
Technical Analysis
"Beware of technical analysis, my son, his jaws that bite, the claws of his, who grab you!" If Lewis Carroll was a lover of investment, it might just be so warned investors of technical analysis.
There are basically two camps of investors. Technical analysis relies on the chart the price movement of stocks and trading volume. Fundamental analysis, on the other hand, focuses on the value of companies, studying such issues as the company's business, its revenues, the competitive environment, etc. At a time when investors want to understand the fundamental business schools from the inside, advocates of technical analysis are for the most part, outside, watching as the company's shares are in the market.
Technical analysts have identified many figures on the charts, they are learning, and give these figures of great importance. There are, for example, the figure of the "head and shoulders" figure "cup with handle." These figures actually are, but they do not have to mean something. Imagine if someone discovered that the day of presidential elections, when the sky over Fresno was overcast, the winning candidates from the Republicans. Like so many schemes, it would be just a coincidence, coincidence. We think we made dependent on that of your hard-earned savings would be simple opportunism.
Investors using technical analysis to focus their attention on the psychology of the market, trying to understand the behavior of other investors. They want to know where to channel more institutional money, in order to put their cash there too. Imagine that Warren Buffett (Warren Buffet) have tried to follow this rushing mob, instead of buy and hold shares of different companies over the years. Imagine the taxes and fees ... Well, how?
It is amazing to think that technical analysts can examine a chart of stocks, find the figure to determine that the stock price "breaks through resistance," and buy these shares. All this is done without the slightest understanding of what the company does, what its prospects, and the circumstances in which it is currently.
Always focuses on the fundamentals. If you find a company that sells low, more and more modular units for the needle, increasing their profit margins and earnings and remaining unnoticed on Wall Street, consider buying the stock. Pay no attention to what others are doing. The true value of great companies did not immediately recognize.
Margin
Buying for margin means that you borrow money from his brokerage firm and using them to buy shares. It sounds attractive, because you can make a profit using money that you really do not. For this privilege you pay interest brokerage firm in the same way as for any other loan. (In fact, it is much easier to open a margin account than to get a bank loan.) If it is on the market turn against you, you or sell at a loss (plus interest), or will hold shares, waiting for the recovery of the market and paying all this time interest on borrowed money.
Investing for margin - no, not that, in our opinion. It should be used with extreme moderation and caution. While some investors are actively playing on the margin, taking 50% of the value of its portfolio, we believe that it is too risky, and should be avoided to any investor.
We assume that if you invest for several years and decided to use margin, you limit the amount of the loan not more than 20% of the value of their portfolio. If you did, but in your portfolio securities are worth $ 20,000, then you going to be $ 4,000 and make $ 24,000 working for you. This is called leverage. In small quantities it can be useful and not too risky strategy.
And yet, think very well before you use margin. If you buy stocks on margin and pay 9% for this loan, you must be absolutely sure that your actions will bring more than 9% yield. If you purchased securities fall in price below a certain level, you get the "margin requirement", which means to make extra cash into your account.
Only experienced investors should use margin. But, in fact, many experienced investors just avoid doing it.
However, there is another reason why you may want to open a margin account, even if not interested in buying shares with borrowed money.
Short Sale
When you make a short sale, you are counting on the fact that the stock price will go down. You begin the process of short selling, holding shares in their current holder. This may sound complicated, but, in fact, it is not; your broker with low commission to do it for you automatically. Then you sell these shares involved at the current market price. Then you sit back and wait for the stock price will go down. While you wait, you have to pay a dividend to the person who actually owns the shares you occupied (if the shares are paid dividends), and, in some cases, you have to pay interest brokerage firm, as well as for borrowed money.
When you feel ready to cash in your investment - be it at a profit or a loss - you close your position by buying shares at current market price, in order to regain their lender (another thing your broker will automatically for you). That's it.
Short selling can cause a number of potential benefits to your portfolio. First, short-selling refers to the hedging strategies: you take compensatory measures to counter a possible fall in the stock market. Moreover, in addition to its role hedging, short selling of shares is a great way to earn money. In fact, if you short sell selected stocks correctly, you can earn money two ways: long, if the overall market is growing, and short, if your stock is falling. This is extremely exciting!
Secondly, and this is even more important, short-selling is not practiced widely in the investment community. From the perspective of an experienced investor, it makes a short sale is even more interesting occupation. This is because sophisticated investors and are very fond of a good swim against the tide. While most investors are trying to calculate how much ten points they can squeeze out of their shares, we look at things differently. We see the same paper upside down, assessing how far they can fall. Rarely taken the opposite view can bring considerable profit.
A final note: One day it may happen that your broker will be forced to return the occupied you share their anonymous owner, as a rule, because this owner wants to sell them. In this case, you have to redeem shares earlier than you thought - whether you have time for them to earn a profit or not. This happens only with very small companies, who have little stake in circulation, and is usually a small loss. Put money into something else.
Counting revenues, remember that there are made the same usual steps of buying and selling shares, but only in reverse. Both transactions have their base price and selling price. But for the short sale of shares in chronological order is changing.
The ability to make short sale features an experienced investor from the beginner. Considering the short-selling activity is extremely difficult and dangerous, some people pay big money for their participation in the "hedge fund" partnership of mutual funds, whose managers sell stocks short and using margin. Having read this far, you know almost everything that they know these "professionals", and can do it all yourself.
Our learning process is nearing an end. Go to the last step on the path to successful investing.