jse/liberty staff investment challenge june 2011
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JSE/Liberty Staff Investment Challenge
June 2011
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Setting your Investment Strategy
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• Consider your goals and time horizon
• Watch out for inflation and costs
• Be honest about your risk tolerance:
• Investing involves risk
• No pain, no gain
• Know what you know
• What not to do:
• Don't follow fads
• Don't be satisfied
• Don't lose money
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Investing or Trading to Success?
The primary difference between trading and investing is your time horizon.
•What trading attempts to predict is the near term behaviour of other traders
•Short-term traders attempt to buy low and sell high, not focusing as much on company fundamentals as long-term investors tend to do
•Investors look to find and hold successful businesses and earn returns from earnings distributions
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Understand how your emotions affect your investing
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Some common psychological traps to avoid:
• Prospect theory (risk versus reward)
• Loss Aversion (fear losing greater than appreciate gaining)
• Status quo bias (tend not to change accepted behaviour)
• Gambler's fallacy (observations are based on prior trials)
• Anchoring (rely too heavily on one piece of information)
• Confirmation Bias (find information supporting our view)
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Investing in your Future
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But it depends on the Sector
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Stocks behave differently
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Each month there is likely to be a different winner
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So if you want to win (be a short term trader):
• Don’t diversify your positions
• Stick to one type of bet
• Trade regularly on perceived emotions and ignore fundamentals
• Keep concentrated positions
• Think about your entry and exit points, ignore the long term
• Listen out for the latest stock tip or fad
• Worry about yesterday’s stock movements
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Exactly what you would not do when saving for a long term goal
Exactly what you would not do when saving for a long term goal