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What's the big deal? On one side you've got the Tech guys claiming that fundamental guys are stodgy, outdated, boring and unreliable. On the other side the "fundies" are calling technical analysis, voodoo, myopic, self-fulllingly prophetic and, you guessed it, unreliable.
The only universal truth on either side, and I'm sure you guessed it again, is that any analysis is unreliable.
As soon as an investor becomes convinced that they have discovered an infallible method of stock picking, get as far away from them as possible because they are about to self destruct.
First of all what are technical and fundamental analysis?
The fundamentals of a company are simply the documented business statistics, structure, market and plan. It's a numbers game of value. Is the company worth what it's stock price says it's worth?
Technical analysis is centered on price action. The graphical evaluation of market psychology based on historical patterns. These patterns are revealed by the extensive use of charts. Indeed many technical analysts don't particularly care what a company does for a living, apart from what market sector they are in and how that sector is performing.
These definitions are an over simplification of what each camp actually does, with a combination of elements shared by both sides more often the case. As in other areas of life, most people usually reside somewhere in the middle.
I think the techies, share more methods with the fundamentalists than the other way around. but there are always extremists on both sides.
As you broaden your financial literacy, you would be well advised to become proficient in all areas of analysis. Indeed many an excellent company has wallowed in poor price performance for years. While other companies that have no revenues are selling at outrageous prices. Dismiss the reality that both techniques have their strengths and weaknesses and you are setting yourself up for financial pain. Embrace them both and you'll see the financial gain.
The use of fundamentals will make you money and the use of charts will maximise that money.
Furthermore the use of fundamentals will protect your money. Add in chart analysis and you've built a fortress around your portfolio.
JT
Friday, May 30, 2008
Monday, May 26, 2008
Investor psychology
Just a quick thought or two on investor psychology.
This is the area that will make the difference in the success or failure of your portfolio.
Go to Las Vegas, Atlantic City or any one of the many Indian gaming casinos. As you walk in the door look around and do a quick evaluation of the investment that has gone into building and operating that casino. Think about it as a business and ask yourself what is it that they know about their customers. The answers are directly relevant to your own psychology and what you should NOT do as an investor.
The reason that Casinos work, is that humans, on the whole, are pretty predictable. We are all born with that same gambling bug in our heads. It is this bug that causes investors to buy into an investment at the top and sell at the bottom. It's what is behind the tendency of some to ride an investment down into the cellar, when the should have cut their losses and sold after the investment broke down and reversed it's trend. And this bug, is precisely, what causes people to invest in ridiculously risky stocks in the quest for that big pay off.
These are the reasons that most people new to trading fail. It is a built in liability that all successful investors have learned how to deal with. They each may have a different story on how they manage these damaging tendencies. I say manage, because you can never completely divorce yourself from this bug. Nor should you want to. It is also this bug that forces you to accept some risk. And as the Man says " Rate of return is directly proportional to the level of risk". It is in controlling risk, where you must concern yourself.
I recently went to Laughlin Nevada on a gambling excursion with some friends. And I set aside some money to lose and went in to enjoy myself. In retrospect I didn't really enjoy myself because the whole concept of it ran counter to the psychology I have trained myself to vanquish.
But I dutifully went on and plugged my money into the machines just to continually have them light up, sing me a tune and flash a sign to anyone watching that I am a loser. It wasn't until later that day, when checking in on some trades that I was working, that it hit me. I had a trade that was paying off nicely as I had know it would. The amount of money in the trade, was 10 times that which I had set aside to loose gambling and the amount it returned would have made all my friends jealous if I had won it gambling. This was definitely more fun and much more rewarding than the casinos.
I had been watching my cash slowly disappear down the casino hole and it bugged me the whole time. In contrast I had scarcely even considered the trades I had working in the markets. It was because I had controlled my exposure to the markets. I had an exit strategy, a defined price target and an acceptable risk/reward scenario. My exposure to the casino, on the other hand was out of my control, the risk/reward scenario was all in their favor and my only exit strategy was to not loose any more money than what I had set aside for gambling.
I just kept hoping, as I looked around, that all these people were enjoying this casino that I was financing.
JT
This is the area that will make the difference in the success or failure of your portfolio.
Go to Las Vegas, Atlantic City or any one of the many Indian gaming casinos. As you walk in the door look around and do a quick evaluation of the investment that has gone into building and operating that casino. Think about it as a business and ask yourself what is it that they know about their customers. The answers are directly relevant to your own psychology and what you should NOT do as an investor.
The reason that Casinos work, is that humans, on the whole, are pretty predictable. We are all born with that same gambling bug in our heads. It is this bug that causes investors to buy into an investment at the top and sell at the bottom. It's what is behind the tendency of some to ride an investment down into the cellar, when the should have cut their losses and sold after the investment broke down and reversed it's trend. And this bug, is precisely, what causes people to invest in ridiculously risky stocks in the quest for that big pay off.
These are the reasons that most people new to trading fail. It is a built in liability that all successful investors have learned how to deal with. They each may have a different story on how they manage these damaging tendencies. I say manage, because you can never completely divorce yourself from this bug. Nor should you want to. It is also this bug that forces you to accept some risk. And as the Man says " Rate of return is directly proportional to the level of risk". It is in controlling risk, where you must concern yourself.
I recently went to Laughlin Nevada on a gambling excursion with some friends. And I set aside some money to lose and went in to enjoy myself. In retrospect I didn't really enjoy myself because the whole concept of it ran counter to the psychology I have trained myself to vanquish.
But I dutifully went on and plugged my money into the machines just to continually have them light up, sing me a tune and flash a sign to anyone watching that I am a loser. It wasn't until later that day, when checking in on some trades that I was working, that it hit me. I had a trade that was paying off nicely as I had know it would. The amount of money in the trade, was 10 times that which I had set aside to loose gambling and the amount it returned would have made all my friends jealous if I had won it gambling. This was definitely more fun and much more rewarding than the casinos.
I had been watching my cash slowly disappear down the casino hole and it bugged me the whole time. In contrast I had scarcely even considered the trades I had working in the markets. It was because I had controlled my exposure to the markets. I had an exit strategy, a defined price target and an acceptable risk/reward scenario. My exposure to the casino, on the other hand was out of my control, the risk/reward scenario was all in their favor and my only exit strategy was to not loose any more money than what I had set aside for gambling.
I just kept hoping, as I looked around, that all these people were enjoying this casino that I was financing.
JT
Sunday, May 25, 2008
Silver. The single, most important investment decision
What did I do that changed my mentality about money forever?
I purchased Silver.
Apart from educating myself about the need for financial literacy, the purchase of silver did more to motivate me to build my portfolio, my discipline, my passion and ultimately, develop my business, than any other thing I could have done.
Once I spent my money on a hard asset, something that I held in my hands, it made irrelevant everything I had previously wasted my money on.
Robert Kiyosaki gave me the first key in Rich Dad Poor Dad. He talked about the differences between buying assets versus liabilities. If you are just getting started in the quest for financial freedom, this book is as good a place to start as any.
But why silver?
Many people have talked about the fact that there is always a bull market in something. That is to say, that in the financial arena there are ups and downs in all investments. The key, as Dan Denning points out, is to be a bull hunter. Look for the investments that are increasing in value. Sometimes this is easier said than done.
For me, silver was a no-brainer and it still is.
Silver currently trades at about 1/50th the price of gold and by all accounts it is more rare than gold. Conservative estimates put the, above-ground silver at 1/5th that of gold. This is a historical record, and by saying historical, we are looking at thousands of years. In addition, the historical price ratio to gold has averaged around 16 to 1. That is, 16 ounces of silver would buy 1 ounce of gold, versus the 50 to 1 mentioned above. Silver also has a huge function to play in industrial use and an ever growing presence in medical application due to it's anti-bacterial characteristics. Some critics point out a declining demand in it's applications in photography, due to the rise in digital photography, but the industrial/medical demand increases seem to be replacing this decline.
These things alone are enough to justify an investment in the white metal.
Add in the reality of inflation and this investment is a slam dunk for me. The real inflation rate is much higher than the Governments' reported 2-3% . Remember this reported rate excludes food and energy. I don't know about you, but food and energy, (Gasoline, electricity, heating oil, natural gas, etc.) are a huge portion of my paycheck. Some estimates put real inflation around 20%.
Silver and gold tend to counter the rise in inflation by rising as our dollars lose value.
At the minimum I look at silver as an economic insurance policy. If silver and gold fall, that means that my dollar investments are most likely increasing in value.
These are just a few of the reasons that I believe silver is in a long term bull market.
I would encourage any reader to investigate for yourself.
But a word of caution; Keep an open mind. Silver is a volatile market. It is a market that is still a little out of the mainstream, but the insiders are extremely polarized. They are either wildly pro-silver or emphatically anti-silver and as such there are many conspiracy theories on one side while the other side shows impenetrable ignorance about the real advantages to silver.
There are so many other fundamental reasons to buy silver that it would take me many pages to reveal, but instead I'll let you discover them for yourself. There are libraries of information on silver out there, check it out
One of the most important rules in investments, is "Don't be dogmatic" This just means that you should never fall in love with an investment nor should you hate any investment. Don't believe the hype on either side. Learn for yourself and develop sound reasons to support an investment or reject it. Sometimes the best trade is, "Not To Trade". And beware of following the herd, they are usually wrong.
In closing I would answer a question many have asked me, "why don't you like gold?"
I do like gold as an investment. I also like it as an insurance policy. I do own some gold. And if there was no such thing as silver I would own a lot of gold. I just believe silver is better.
JT
Legal disclaimer
This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be.
John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
I purchased Silver.
Apart from educating myself about the need for financial literacy, the purchase of silver did more to motivate me to build my portfolio, my discipline, my passion and ultimately, develop my business, than any other thing I could have done.
Once I spent my money on a hard asset, something that I held in my hands, it made irrelevant everything I had previously wasted my money on.
Robert Kiyosaki gave me the first key in Rich Dad Poor Dad. He talked about the differences between buying assets versus liabilities. If you are just getting started in the quest for financial freedom, this book is as good a place to start as any.
But why silver?
Many people have talked about the fact that there is always a bull market in something. That is to say, that in the financial arena there are ups and downs in all investments. The key, as Dan Denning points out, is to be a bull hunter. Look for the investments that are increasing in value. Sometimes this is easier said than done.
For me, silver was a no-brainer and it still is.
Silver currently trades at about 1/50th the price of gold and by all accounts it is more rare than gold. Conservative estimates put the, above-ground silver at 1/5th that of gold. This is a historical record, and by saying historical, we are looking at thousands of years. In addition, the historical price ratio to gold has averaged around 16 to 1. That is, 16 ounces of silver would buy 1 ounce of gold, versus the 50 to 1 mentioned above. Silver also has a huge function to play in industrial use and an ever growing presence in medical application due to it's anti-bacterial characteristics. Some critics point out a declining demand in it's applications in photography, due to the rise in digital photography, but the industrial/medical demand increases seem to be replacing this decline.
These things alone are enough to justify an investment in the white metal.
Add in the reality of inflation and this investment is a slam dunk for me. The real inflation rate is much higher than the Governments' reported 2-3% . Remember this reported rate excludes food and energy. I don't know about you, but food and energy, (Gasoline, electricity, heating oil, natural gas, etc.) are a huge portion of my paycheck. Some estimates put real inflation around 20%.
Silver and gold tend to counter the rise in inflation by rising as our dollars lose value.
At the minimum I look at silver as an economic insurance policy. If silver and gold fall, that means that my dollar investments are most likely increasing in value.
These are just a few of the reasons that I believe silver is in a long term bull market.
I would encourage any reader to investigate for yourself.
But a word of caution; Keep an open mind. Silver is a volatile market. It is a market that is still a little out of the mainstream, but the insiders are extremely polarized. They are either wildly pro-silver or emphatically anti-silver and as such there are many conspiracy theories on one side while the other side shows impenetrable ignorance about the real advantages to silver.
There are so many other fundamental reasons to buy silver that it would take me many pages to reveal, but instead I'll let you discover them for yourself. There are libraries of information on silver out there, check it out
One of the most important rules in investments, is "Don't be dogmatic" This just means that you should never fall in love with an investment nor should you hate any investment. Don't believe the hype on either side. Learn for yourself and develop sound reasons to support an investment or reject it. Sometimes the best trade is, "Not To Trade". And beware of following the herd, they are usually wrong.
In closing I would answer a question many have asked me, "why don't you like gold?"
I do like gold as an investment. I also like it as an insurance policy. I do own some gold. And if there was no such thing as silver I would own a lot of gold. I just believe silver is better.
JT
Legal disclaimer
This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be.
John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.
Saturday, May 24, 2008
What are you doing now?
This is my girlfriends favorite question to ask me. And the perfect topic for my first Posting.
I am in the early stages of my journey, a journey on which, I intend to meet new friends, see new places, conquer new challenges and change the lives of everyone I can make a connection with.
It is a process that I began a few years ago. An awakening of sorts which was less like a bright flash of light and more like slow sunrise.
It was the casual beginning of a day which is still mysterious, not knowing whether the sun will shine, the wind will blow or if there is a storm brewing. What will it bring?
No one knows and the only thing any of us can do is live it out.
Move on with a certainty, that no matter what, it will be better than the day before.
The learning and discoveries never end, and never cease to amaze me. The biggest certainty is that the more I know, the more I find I need to know and the more discoveries I make, the deeper the desire to share them with other people.
This is the purpose of this blog. It will primarily focus on financial matters and personal growth. But don't be shocked if I share some new music or a great new recipe, maybe a new joke, if it is not too raw. Hopefully some entertaining stories will show up from time to time. After all aren't these things part of personal growth?
At the very least they are part of a fuller life.
Next time, , , some thoughts on precious metals.
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