Investment planning: keeping it simple (at least trying to)

[BJKS]

I dont plan to learn how to trade short term. After reading around on here and other investment forums I am resigned to the fact that I simply dont have the time nor patience to learn all of the ins and outs, and for me, the risks of short trading are not worth the amount of time and effort necessary to learn. Therefore, I would like to develop skills for long term trading, that is to say investing (where do you draw the line between trading and investing?). As you may have read in my previous posts, I am not a fan of financial advisers and would like to be in control of my own investments. Ideally I would like to review my position every 3 to 6 months maximum. With this in mind, I would still keep my eyes on the financial situation on a month to month basis so that if a situation arises in which I should sell (as many of you did late last year / early this year) then I will. I believe I could still make a comparable profit with this style of long term trading - buying into a highly diversified portfolio (mostly blue chips) and selling when there is a high probability of the market collapsing (more or less riding the all ords / XJO and watching out for the bumps over the long term).

Would I be correct to assume that most of you are short traders? Does anyone else here subscribe to this long term style of trading? If so, do you have any resources that you could point me to in order to learn how I can do this effectively?

 

[Trembling Hand]

I would say to look into money management/risk management just the same as short term traders do. Same basic principles if you are trading the next 5 min or 5 years.

Position sizing and loss control is where the Holy Grail is (if there is one )

 

[Cartman]

I would say to look into money management/risk management just the same as short term traders do. Same basic principles if you are trading the next 5 min or 5 years.

Position sizing and loss control is where the Holy Grail is (if there is one )

what would you know TH --- your just a punch drunk boxer on ice !!! ---- oh hang on i see you already know that -- lol
could be a candidate for the asf quote of the year (nice to see u never miss an opportunity)

 

[prawn_86]

I think the question is, are you planning on TRADING over a longer time period, or are you planning on INVESTING.

If trading you will still need to know the mechanics (higher highs, trends etc). If investing its a different set of knowledge.

Personally im an 'investor' which means i look at companies with good earnings or potential, buy some stocks for yield etc etc. However there is nothing saying you cant combine the 2 and in hindsight for me, even just a simple "sell everything" order when the XAO broke levels of support would have saved me money

 

[tech/a]

I would like to develop skills for long term trading,

but

Ideally I would like to review my position every 3 to 6 months maximum.

And then

I would still keep my eyes on the financial situation on a month to month basis

Already your concerned and in doing so shortening your timeframe.
Wont be long and it will be weekly then daily.

I would like to develop skills for long term trading,

Just stick to your plan and develope those skills. If your longterm then 3-6 mth or monthly wont be an issue.

"Punching out trades like a boxer on ice"

A true classic. I'm glad you guys love it.
I have that warm feeling of satisfaction.

 

[Julia]

In trading you will still need to know the mechanics (higher highs, trends etc). If investing its a different set of knowledge.

Those mechanics are also useful in longer term investing imo.

However there is nothing saying you cant combine the 2 and in hindsight for me, even just a simple "sell everything" order when the XAO broke levels of support would have saved me money

I think a lot of people would be agreeing with you on this, Prawn.

I'd also suggest there's no reason why you wouldn't place a 'stop loss' on your total invested capital.

Whenever I've invested I've set a limit on how much I'm prepared to lose before bailing out, not just on an individual stock, but on overall invested capital. Imo there's insufficient attention paid to preservation of capital.

 

[MRC & Co]

Those mechanics are also useful in longer term investing imo.

Whenever I've invested I've set a limit on how much I'm prepared to lose before bailing out, not just on an individual stock, but on overall invested capital. Imo there's insufficient attention paid to preservation of capital.

Absolutely agree Julia.

It's what more should have done. Very simple, but very effective.

 

[BJKS]

My plan is to invest, rather than trade, although this depends on how you define these. Somewhere it was described to me that trading is trying to capture volitility in the markets and use it to your advantage, whereas investing is diversifying your money and believing that over the long term the market as a whole will rise (but not actually buying or selling actively). So my strategy would fall somewhere between these - buying low and selling high but doing so over a long time frame (every 6 months or year).

I have been doing some research. I've attached a graph that I created in excel of the log of the share price for XJO from December 1979 to November this year (data from asx.com.au and economagic.com, data is end of month values for XJO from Dec 1979 to Nov 2008 - if anyone knows where I can access data prior to 1979 I would be interested). As I'm sure many of you are aware the rise in share price for this index fits an exponential function (linear if using log values) fairly well (R-squared = 0.93). The variations about this line of best fit are what interest me. If it could be assumed that the share price will continue to follow this general trend in the future (which of course is a big assumption), then the variation of its price around this trend line could be used to your advantage. During periods where the trend is lower than predicted (the market is under-valued), one could buy into the market (perhaps waiting for a small rise or long flat before doing so), and vice versa - sell when the market appears to be significantly over-valued (or at least keep a keen eye on the world economy and pull out if there is indication of a coming bust - something I'm sure we all wished we had done / are glad we did last November).

This is not financial advice, merely a historical analsysis, so dont sue me.

 

[Trembling Hand]

BJKS a few problems with that. You are looking at an index and saying that shares always rise is one of the big fluff ups from the investment industry. You historical figures are rubbish because whats in the index today half weren't around in 1980's. And most that were in the index (which by the way I don't think even existed then ) have gone broke.

You chart is plotting apples at the start but now plotting Bananas :

 

[chops_a_must]

Although you could look at index ETF's TH. That would eliminate that.

 

[Trembling Hand]

Although you could look at index ETF's TH. That would eliminate that.

Don't think they were around in the in the 80's

 

[chops_a_must]

Just saying that's a way to get around it in the future.