Successful Investment: Are the odds stacked against a new Investor?

[zac]

A while ago I heard a crude statement and im not sure if it can be backed up by references but if true its a scary thought when you consider it. I read somewhere that90% of people who attempt to invest in the ASX(Shares) as an individual lose out??

I've been trying to get my head around it and although its definitely easily done losing out on the Stock Market Im not sure it can be said 90% of people fail.
ie if I talk to people who have no knowledge or have dabbled with investing they'd generally say they'd invest in a blue chip company, ie BHP, RIO, CBA.

To me the sure way of losing money is getting spooked when there is a sudden drop so remove your investment where as the longterm person I cant see how they'd ultimately lose 90% of the time?
Obviously there are some bad investments, ie TLS.

To me if someone invested in Stocks with little preparation/knowledge they could potentially make a loss but I think realistically though their earnings/growth is limited (in the longterm)

Quite some years ago I hypothetically wrote down shares I would have bought, these were Woolworths, Qantas, CommBank, CocaCola and Westfield.
If that was my portfolio, besides Qantas id imagine id be doing comfortably now with those options.

As for schemes such as Forex, Options, CFD's etc, from what I gather there, you're constantly competing with others so a very risky and high chance of failure, where as in theory with Stocks, potentially everyone could be a winner.

I'd love to see what other people's views and thoughts are on this.

 

[Gringotts Bank]

Re: Successful Investment, Are the odds stacked against a new Investor??

90% of short term traders, not investors. I think this was based on some study by a US brokerage firm, who looked at clients account balances and followed them over a year or so. 90% of them were headed towards bankruptcy.. apparently. Over any 10 year period, a long term blue chip investor has an extremely high chance of coming out ahead.

 

[zac]

Re: Successful Investment, Are the odds stacked against a new Investor??

90% of short term traders, not investors. I think this was based on some study by a US brokerage firm, who looked at clients account balances and followed them over a year or so. 90% of them were headed towards bankruptcy.. apparently. Over any 10 year period, a long term blue chip investor has an extremely high chance of coming out ahead.

Yeah cheers, thanks for the clarification.
Short term is frought with danger.

 

[ROE]

If you invest in a companies that are strong in fundamentals and business model
You will comes out a head long term.

If you weed out all bad business model you are half way there

The other half is at what price to buy

Tls isnt a bad investment if you bought them between 260-290

Qantas is a bad business model i wouldnt buy at any price

Asciano asset isnt bad but its fundamentals weight down its earnings due to debt burden so that get throw out too...

Coke is a ver very good businees that will long term close to gurantee your earning will be above inflation

Simple steps like this will help you end up buying business that will offer good long term return

 

[So_Cynical]

The odds are what they are...if a new investor goes up against a MM CFD or FOREX provider then he/she should realise that the sole purpose of the provider is to make money (its a business after all) and the business they are in is to do with separating idiots from there money...to many people think these guys are legitimate service providers, Aust needs 15 providers because there's this incredible need out there for forex trading with 1000% margin.

Now in the stock market where there is a real person on the other side of the trade its relativity easy to make money provided you stick to some rules, have some discipline and little or no money/time pressure...my last entry in the CFX thread is a simple example of just how easy it is to be profitable.

https://www.aussiestockforums.com/forums/showthread.php?t=7600

As long as there is no major market pull back or company disaster, that trade has a near 100% chance of being successful, the trade wont make me a million, i wont make any headlines, its just bread and butter, simple low risk investment....the odds are stacked in my favour.

 

[tothemax6]

The odds are always stacked against new investors.
But new investors gain experience, and become experienced investors.

Ultimately, everything is speculation, be it sugar futures or value stocks. All a speculator can do is process the information he has access to, using his knowledge of the workings of the world, and make his trades. The extent to which he processes correctly, he will make profits, the extent to which he makes mistakes, he will suffer losses. That is all trading (investing) has ever been. Obviously, the more experience an investor has, the more likely he is to process information correctly, and thus the higher the odds of profitability.

This applies to all markets, forex, options, futures, cfds, stocks, bonds, whatever.

 

[Glen48]

Look for bad news try and pick the bottom and buy in also have to look at thing like airlines long term fuel will put a lot out of business or they will cut back on flights.
Look at Asian like Toyota, Yum, Meccas,as the Chinese etc want to become western just like us with fashion gear and a life style they can't afford.
CFD are good when some thing is tanking like the yen after the tsunami get in get out.

Now I need to read that and take some advice.
Also look at clichés such as hasten slowly, they have been formed over hundreds of years from people who have learnt a hard lesson.
cheers

 

[Glen48]

Just found this:

One of the Greediest Things You Can Do as an Investor
By Dan Ferris, editor, The 12% Letter
Thursday, May 12, 2011


Last month, I touched the "third rail" of investment advisories.

I said the one thing most investors can't bear to hear. I told them to hold a good chunk of their portfolios in cash… to be patient on making new stock purchases… and to expect to make a fortune with this idea.

Some of my readers were furious that I refused to go where the "action" is… that I'm not swinging for the fences with risky stocks.

For better or worse, most people have to have "action" in their investment portfolio. That's why most people lose in the stock market. They refuse to wait for "can't lose, no brainer" opportunities and values… and instead settle for "well, this might work out" ideas.

As I've been telling my readers, the market is full of "well, this might work out" ideas right now.

Today, the S&P 500 is selling for about 17 times trailing earnings. That doesn't seem terribly overvalued. But it sure isn't cheap. The broad market doesn't offer much in the way of dividends, either. The S&P yields less than 2%. Commodities have soared in the past six months. Government bonds offer a tiny yield of 3.22%. They are a disaster waiting to happen…

That's why I'm keeping plenty of "dry powder" and recommending others do the same in the form of U.S. dollar cash and "real money" – gold.

Holding a large chunk of cash when stocks are expensive is one of the greediest, most opportunistic things you can do as an investor. It's vital to making large returns in stocks over the long run.

You see, nothing keeps an investor's options open like holding cash. Right now, with stocks and bonds overvalued and commodities overdone, investors lack alternatives. Cash alone gives you the option to buy anything, anytime. If you find a cheap stock and you have cash, the stock is as good as yours. If you have stocks and no cash, you'll have to borrow cash against your stocks (usually at high rates) to buy other stocks.

You might think cash's "optionality" is easily trumped by inflation. If you're talking about holding a dollar for 10 years and doing nothing with it, I agree. I'd never recommend you do such a thing. It's a horrible idea. But a good investor can handily beat inflation over time…

Sideways markets, such as the one I expect for the next several years, contain multiple bottoms, where great bargains will be found. Using your cash during such times will more than preserve your purchasing power.

Take the most recent bottom, in early 2009. That April, I told my readers to buy semiconductor giant Intel…

If Intel makes a little less money this year, it's not because it screwed up or lost market share. It's because the entire global economy is depressed. Over time, the world will use more computers, more Intel chips, and the company's growth is virtually guaranteed.

Intel's 2008 earnings per share came in at $0.92. If you value Intel like a World Dominator, at 25-30 times earnings, the stock would be worth $23-$28 per share. It trades for less than $16 today.

Since then, my readers are up more than 50% on share price appreciation… and have collected nearly 10% in dividends. And Intel just raised its dividend payout this week.

If you don't have cash ready, you'll never see that kind of return in a big, safe stock. You won't be able to buy it. And the opportunity will pass you by.

The problem is, most people have no patience, so they buy whatever sounds sexy at the moment… and then suffer huge losses when their overvalued purchases fall in price.

The patient, greedy investor knows holding cash will allow him to take advantage of the bargains – like Intel – that will appear. The average loser doesn't see it this way, but successful investors see cash as "returns waiting to happen."

Get greedy for those returns. Hold cash.

Good investing,

Dan Ferris

P.S. I've put together a small list of safe, wealth-compounding stocks that are cheap enough to buy with part of your cash hoard. This list makes up one piece of a unique money management strategy that not one stock broker in a 1,000 will ever tell you about. To learn the details of this "plan," and to start collecting large amounts of investment income immediately, click here.
Further Reading:

 

[zac]

In relation to the previous post, im not sure this is what the article is referring to as to the correct method in buying stocks.
But what I do is value a company (intrinsic Value) and add a margin of safety and wait for the stocks to reach a certain threshold and then buy in.
I dont buy into companies just for the sake of being part of them, has to be at the right price.

Is that the idea?
I imagine lots of investors who want to set up a share portfolio, either by themselves or through a broker have all their allocated money invested in the one hit on the one day.

From a longterm perspective I guess its no big deal, as it will even out in the end, but considering I like to have a margin of safety of 25% on my purchases, you'd hate to be 25% behind from the word go.

 

[kingcarmleo]

The problem imo is that first time investors aren't patient enough and get scared so they sell only for the stocks they sold to be much higher in a year or so.

 

[Tyler Durden]

I think the odds are stacked against the average investor. As soon as you buy, you're already down because of the transaction costs. You'll need the SP to go up at least a bit just to break even net costs.

 

[burglar]

... break even ...

And break-even is not what you hoping for!

 

[So_Cynical]

Now in the stock market where there is a real person on the other side of the trade its relativity easy to make money provided you stick to some rules, have some discipline and little or no money/time pressure...my last entry in the CFX thread is a simple example of just how easy it is to be profitable.

https://www.aussiestockforums.com/forums/showthread.php?t=7600

As long as there is no major market pull back or company disaster, that trade has a near 100% chance of being successful, the trade wont make me a million, i wont make any headlines, its just bread and butter, simple low risk investment....the odds are stacked in my favour.

Just for the record i exited my CFX trade today for a very easy 4.5% profit for holding less than a month.

https://www.aussiestockforums.com/forums/showthread.php?t=7600

The odds are stacked in your favour when you can enter a trade with a very high level of confidence in your ability to recognize an opportunity and profit from it.

 

[sptrawler]

The odds are stacked against you, no matter what company you choose, if they make a poor investment decision, you are the last to know about it.
I would suggest picking companies that have guaranteed incomes no matter what the economic climate.

 

[Tyler Durden]

I would suggest picking companies that have guaranteed incomes no matter what the economic climate.

Like alcohol