Fortune Watch

The other day I read about someone who claimed to have doubled his investments every month for more than a year now. If I do the math’s it turns out that this man must have multiplied his money to more than 4,000 times what it was. That’s 4,000 times, not 4,000 per cent. The interesting part is that not only do such people expect to be believed; there are those who believe them. If you ask a random collection of people whether they think it possible that somewhere in the world there exist investors who can go on doubling money every month, then you’ll get a surprising number of yeses. This sounds like believing in anything you hear.

No one who invests in the stock markets ever loses any money. Or at least, that’s what I will have to believe if I take at face value whatever someone says about their personal performance in managing their investments. I’m serious. It’s amazing, actually. The markets fall. Dubious stocks shoot up and people keep buying them and then when the markets fall and stagnate and no one admits to having lost any actual money. To be fair, there are some who admit to holding investments that are way under water from their purchase price, but claim that this is not a loss but a temporary dip.

That’s a point of view, I suppose. Not only does this undying faith in the existence of supernatural rates of return persist, it does a lot of real harm.

The refusal to admit to wrong investing decisions means that we miss the opportunity to learn from them. I know these sounds like a slogan from one of those motivational posters, but failure really is a very good teacher. Provided one makes the effort to learn from it.

And at least in the case of investments, it isn’t all that difficult to learn from bad investments. What one has to do is to honestly think of the reasons why one bought that investment and then resolve not to repeat that reason without any further refinements.

Let me illustrate with a couple of examples.

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There is inflation every year. You cannot stop an increasing in living expenses as prices of consumer goods increasing all the time. Saving money becomes an extremely difficult task to do. Here are some solutions for saving a little so that you can still meet your needs and still find ways to trim off a little for the future.

Budget – Get one and stick with it! And set aside at least a small portion for savings while you’re at it; savings for your future, your retirement, your education, your vacation, whatever. Head to your local office supply store for planning workbooks or budget sheets to use. Or head to your favorite search engine and type in, “budget planning” for hundreds of sites with articles, free downloads, tips, ebooks and other resources to help with your budget setup and follow up.

Plan Ahead – Make sure to plan for emergencies and the unexpected, like an appliance break down or garage door malfunction. Even if you can only set aside $100 or so each monthly, place it in an account and earmark it for this “Miscellaneous” fund. Then when things go wrong, and they will – nothing is perfect – you’ll be better prepared.

Monthly Items – Work out a monthly payment for items that you don’t pay monthly and set this up in your regular monthly budget. For example, for items like annual home owner or renter insurance, quarterly water bills and life insurance payments and annual trash bills, take the amounts and determine what they would be monthly. Then list the items on your budget log and pull these amounts aside, saving them in your account for those purposes. This way, when the bills hit, you won’t be caught off guard and have to scrounge for the payments.

What works well, instead of handling multiple savings accounts for each company owed, is to use index cards and one savings account. Create one index card for each bill. Then simply log the amount you’re setting aside on the card and deposit it into your savings account. Keep the index cards with your savings passbook to remind you what the balance covers. The total of all your index cards should equal the balance in your savings account. Make sure to create an index card for your regular funds that you are saving each month in step one above and a card for your Miscellaneous fund in step two above.

Both short term and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.

Compounding: Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.

Dividends: Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company’s overall business strategy and success than volatile price fluctuations based on market emotions.

Reduction Of The Impact Of Price Fluctuations: In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.

Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.

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When it comes to building your nest egg, the most important strategy is to minimize loss. The best way to minimize this risk is through the power of diversification. By diversifying your portfolio, you are ensuring that your nest egg is spread across different baskets. Diversification helps to strengthen and protect your portfolio.

Your chances are increased that if one area falls another area that you have invested in will remain strong, and your assets will be protected..

I define risk as the probability of things going wrong. Once things have gone wrong, they cannot go right. Older investors will remember this feeling they have after their losses, of wanting to turn the clock back. It is the same feeling you get after losing a loved one, when you want to reach out and touch the person after she or he is gone.

The preventive part is all about ‘diversification’, almost the only way to manage risk as defined in financial markets. Both risk measurement and diversification lend themselves to mathematical and statistical analysis, giving classical finance its biases. .

Value investors do the opposite. They add to their positions as a scrip goes down, playing to be the ‘last man standing’, i.e. trying to buy the last falling share as sellers depart the stock. The more of these ‘last’ shares they can pick up, the better their returns, provided of course, they have bought a safe, steady business at a great price, and the business recovers subsequently. .

In this strategy, you should try to trade a correlated pair as part of your diversification strategy. Like buying the market leader and short- selling the market laggard. A caution here is that if you are buying at the bottom of the cycle, then the laggards gain more than the market leaders. In a bull market, buying the market leader and short-selling the laggard may be a good trading strategy. Make sure that you don’t make a mistake in reading the market for example, is this a bull market or a bear?. Across the world, the cost of capital will soon start to drop. That would suggest a very shallow bear market, if we see one at all. Even a normally ‘bearish’ person like me is not willing to take a stand.

Statistically one thing is clear – traditional means of diversification won’t save you. Remember one common mistake: mindlessly diversifying into, say, 100-200 stocks, which then go unmonitored for entry and exit points. Since the investor no longer knows enough about these businesses, he is prone to fall prey to rumors. In effect, the act of ‘diversifying’ will actually increase the probability of losses rather than reduce it.

True diversification includes far more investment choices than just stocks and bonds. It includes other non-correlating asset classes that don’t intrinsically involve either speculation or timing. Aggressive investors like the readers of this article must be having more than 50 per cent of their net worth in equities, especially if they are below 40.

With each investment be sure to invest no more than you can afford to lose, so you can sleep at night. And use dollar cost averaging – taking a fixed proportion of your personal savings each month to add to your investment holdings, so that volatility becomes an advantage over a long time horizon. Only then will diversification begin to make statistical sense.

The initial exchange gave way to a group of merchants who banned together to form the New York Stock Exchange. This initial assembly of men met every day on Wall Street to trade their stocks and bonds – an outdoor ritual that lasted through to the early 1900s, when commerce moved indoors. Today, investment on this scale has come full circle – operating outside the bricks and mortar of traditional trading. Today’s investors operate en masse through the Internet, buying and selling stocks online with the click of a mouse.

Buying and selling stocks online has become the new way of investing. In this chaotic world of long work hours combined with the juggling of frenzied family schedules, the computer has taken an ever-increasing role – giving us a place to work, communicate, and be entertained any time of day from the comfort of our homes. The computer has also taken an ever-increasing role in investing, offering consumers the opportunity to trade online. Several reputable companies have pioneered the online investment arena where they have kept pace with the changing needs of today’s modern investors.

In accessing stocks online, investors have been given access to a bevy of services previously only obtained through visiting brokers in the brick and mortar world of finance. Online investment through reputable brokerage companies requires investors to set up an account through the website. They can then access their financial portfolio at the touch of a mouse. Additionally, these companies will offer up-to-the-minute stock quotes, historical performance and forecasts for each stock, as well as in-depth information about each of the companies.

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If you have your card stolen or you think you have been the victim of credit card fraud, then you need to sort the problem out as quickly as possible.

Credit card fraud is becoming more and more of a problem, and if you are not careful then you could lose money to fraudsters. If you are worried about fraud but are unsure how you can protect yourself and your credit cards, then this article could help you. Here are some useful tips and advice about how to protect yourself from credit card fraud:

The methods and types of fraud are increasing as criminals learn new techniques and get improved technology. The most common methods of fraud today include: Copying and ‘cloning’ of cards, ATM fraud, Internet card fraud,PIN number stealing.

All of these methods are used more commonly than ever before to effectively steal your money. Obviously, it is impossible to totally eliminate the problem of credit card fraud, but there are things you can do to greatly reduce the risks.

Keep cards close. Make sure that you never let your cards out of your sight. Never leave cards unattended, and certainly don’t lend your card to anyone. If you are paying in a restaurant or shop, make sure you pay attention as to where your card is, especially credit card processing machines. A common method used to copy your card is to get the details whilst you pay, so keep an eye on your card at all times.

Whenever you get a receipt or a credit card bill, check that all the items and amounts are correct. If there are any amounts that you are unsure about, contact your card issuer immediately. Any paperwork that you throw away should be disposed of properly. Shred documents so that people cannot go through your rubbish and discover your card details.

Look behind you. When withdrawing money from a cash machine, make sure no one is looking over your shoulder to read your PIN. The easiest way for someone to use your card illegally is to see your PIN and then steal the card. Also, make sure you never keep a written record of your PIN, especially near your cards.

Use reputable firms. When buying on the Internet, make sure that you only purchase items from large and well-established providers. Small or unknown providers should be avoided as even if they are genuine, their security and encryption may be poor and allow fraudsters to access your details.

Keep contact numbers. If you have your card stolen or you think you have been the victim of credit card fraud, then you need to sort the problem out as quickly as possible. Keep all the contact numbers for your card issuer in a safe place so that you can call them up and sort out problems immediately. If you are careful and act quickly, you can limit the damage of fraud or prevent it occurring at all.

The world of stocks is a highly dynamic one. One has to constantly be on his/her toes in order to keep abreast of the latest developments taking place. To a layperson, it can be intimidating, with stock prices constantly changing every second.

Of course, we have seen during the (in) famous market crashes that can happen when things do not go according to what the markets expect. When unexpected events and their sudden impact on stock prices make even the most experienced among us quiver, imagine what the common investor must be thinking!

However, I am of the belief that certain simple investing habits, if inculcated well into one’s behavior can make one’s investing experience more comfortable and rewarding..

In this write-up I shall restrict myself with stock market investing. As such, the term ‘investing’ used in this article will simply imply investing in the stock markets. Let us now take a look at some characteristics effective investors possess.

Begin with the end in mind: Investing, in its broadest sense, is one of the most basic and important processes of preparing oneself for meeting future financial needs like child education and marriage and retirement. And stock market investing is no different. It has to be followed like a process with an aim of achieving your future financial needs. Started early, and done in a systematic manner, investing in good quality companies can help an investor generate good returns over a long-term.

Think ‘risk-risk’: In making an investment decision, apart from returns, there is one more very important factor that should weigh heavy on your minds — risk.

Simply defined, it is the uncertainty of happening/non-happening of a certain event(s) that is likely to affect future returns. A risk is generally attributed to external factors that create disturbance in the existing scheme of things. Some of these external factors are geo-political uncertainties (elections, terrorist attacks and wars), financial crisis and economic downturn.

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Perfection is achieved not when there is nothing more to add, but when there is nothing left to take away.

What, you may ask, is the connection between minimalism and investments? A very close connection, I think. When I look at the market for investment products today, and see the kind of investment portfolios that people are collecting, I think there’s a strong need for a self-conscious and aggressive minimalism in investment planning. What is happening now is the very opposite. The loudest messages about investments and savings that reach people are advertising about the launch of new mutual funds. This collective impact of these messages is to fabricate the idea that your investment needs are best met by portioning out little bits of your savings into a large number of exotic and specialized mutual funds.

Here’s a sampling of just the last few months. There are funds specializing in different sizes of companies-large, medium, small and micro. There’s a fund for companies that are facing ‘unique’ situations, which are apparently different from ‘special’ situations. There’s a fund for investing in companies that will benefit from increased infrastructure spending and one for only companies that will benefit from increased consumer spending. There’s a fund for investing in companies that are growing fast and another one only for companies that will grow fast in the long-term. There are even some funds that specialize in companies of all sizes although that’s clearly a meaning of the word ‘specialize’ that’s not there in any dictionary that I have seen.

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Risk perception is the subjective judgment that people make about the characteristics and severity of a risk.

As I’m writing this piece, a friend of mine and his wife are discussing the cancellation of a holiday to the hill station.. But my friends’ problem is this that an accident took place around the place he wanted to visit a few days back and killing 12 tourists. Now, my friends think that hill roads are too risky to travel on. They are too risky, aren’t they? Well, compared to what?

Human beings perceive and calculate risk in a very non-linear fashion. This may have been OK till prehistoric times but in the modern world, our perception of risk means we are often unable to take the correct decisions in everything from where to go on a holiday to where to invest our money. Savings and investing decisions are almost entirely about how we absorb and process risk-related information and how we balance this out with rewards and gains.

As it happened, when my friends told me about this recent crisis, I had just read an article titled ‘Rare Risk and Overreactions’. It says that human brains are not very good at probability and risk analysis, especially when it comes to rare and unfamiliar events. We tend to exaggerate spectacular, strange and rare events, and downplay ordinary, familiar and common ones. Our brains are much better at processing the simple risks we’ve had to deal with throughout most of our species’ existence, and much poorer at evaluating the complex risks society forces us to face today.

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