Portfolio Management Tips and Tricks & How to Build Your Share Portfolio
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Post on 29-Nov-2014
DESCRIPTIONDuring this week's Invast Insights we cover: Portfolio management tips and tricks Building your portfolio Having the right mindset GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER) http://invast.com.au/insights CONNECT WITH INVAST TODAY Facebook https://www.facebook.com/invastglobal Twitter http://twitter.com/InvastGlobal Linkedin http://www.linkedin.com/company/invast Invast http://www.invast.com.au Google+ https://plus.google.com/+InvastAu/
- 1. 1 This week Portfolio management tips and tricks Building your portfolio Having the right mindset
- 2. 2 This week we look at the following topics: Portfolio management tips and tricks Building your portfolio Having the right mindset
- 3. 3 Last week we wrote about the Australian stock market looking vulnerable in our Invast Insights report. We said The Australian economy is heading for a very difficult period as commodity prices fall and the building and construction activity along the east coast of Australian starts to ramp up from depressed levels, albeit at a moderate pace probably not enough to cushion the blow from mining. We continue to hold a bearish view on the Aussie dollar and think its going down to the mid 80 cent range against the US dollar over the next year or two. We have articulated these views on the Invast blog in recent weeks. As the Australian dollar falls, foreign investors will be looking to reweight their exposure to Australia, knowing very well the leverage Australia has to disappointing data which continues to come out of China.
- 4. 4 We went on further to say From an asset allocation perspective, we continue to see the need to have adequate levels of international exposure. The falling Aussie dollar provides an opportunity now to crystallise very high levels relative to other currencies. As the Aussie dollar falls, the value of international positions grows in local currency terms, all other things being equal. It has already fall by around 200 pips since we initially voiced our concerns on the Invast blog last week and more than 500 pips since our webinar in late June cautioning the fall in the Australian dollar Our focus this week on building out the portfolio. The first and most important element of building a portfolio is having the right mindset. What does this mean?
- 5. 5 Most traders and investors enter the market thinking that they can generate excess wealth. They start with the incorrect assumption that they are smarter than everybody. This is often the first mistake. The market is a collection of many participants who all think they have the edge. They are willing to put either their money or the money of their clients to use. The most important part in becoming a successful investor is in starting out with humility. To be successful in investing or trading, you need to respect your opponent the market. Every successful sporting great has held this view. Sporting coaches teach their players to respect the opponent. When you dont respect your opponent, you become prone to shocks. Likewise in markets, the person on the other side of the trade is your opponent.
- 6. 6 You need to develop and understanding what drives the market and often step back to see what the market is assuming. The market isnt always wrong and if you find yourself constantly fighting the market it is often a sign that you are on the wrong path. Sound familiar? Read on. We spend a lot of time in this publication discussing the importance of having the right way of thinking. Existing Invast clients have been through this before. We tend to write pieces on trading psychology every few months. Some of you might find this repetitive but it is crucial. The greatest asset a trader or investor has is their ability to think and turn those thoughts into profit. If your way of thinking isnt update, your profitability will become very sporadic or worse, you will start to lose money.
- 7. 7 The point in this note is that we dont want you to start investing with the assumption that you will beat the market or as some investors in the United States often say, beat the street. The first assumption you should always start off with is that the market is usually well informed and is made up of a whole range of people who are willing to put their money to use. This doesnt mean that the market is always correct. If you start with the assumption that the market is usually right you can then start to also accept the fact that sometimes the market doesnt get it right. Sometimes the market over estimates the threats of challenges, these find their way into incorrect assumptions which impact pricing. This is where the individual investor or trader can exploit the situation and start to put together a plan to take advantage. It is only in rare circumstances that the market is wrong. If you accept this, you will stop falling into the constant trap of fighting the market.
- 8. 8 Our experience and the feedback from many smart investors we regularly talk to is that being contrarian doesnt always pay off. Sometimes following the trend is a lot more profitable, even though it might conflict with your initial impression. For those interested in trading stocks, we have found the following formula works really well: * On larger companies, it is worthwhile at times being conservative. Sometimes the market gets it wrong and large institutional investors dont have the luxury of time, which an ordinary investor can afford. It is worthwhile becoming a contrarian on large companies if you have the time and patience. * You cannot be a contrarian and buy against the trend unless you are willing to hold out. Many large companies have the ability to turn themselves around. They have access to capital, to resources. They can survive which is why we suggest a contrarian should only limit themselves to large companies.
- 9. 9 * Smaller companies are a lot more fragile, they have the ability to disappear much easier. Because of this, we suggest with smaller companies to only follow the trend. Many smart investors target smaller companies, which they think have the ability to become future leaders. They get paid a lot of money to find these opportunities and so they spend a lot of time speaking to management, understanding businesses and pinpointing future opportunities. * With smaller companies, dont try to be a hero and fight the trend. You will usually lose, particularly when a stock price is falling. Foregoing upside potential is something you can live with but holding onto a small company which is being sold off by the market is usually a recipe for disaster. Those who have recently traded stocks in the Australian market know exactly what we are talking about here.
- 10. 10 For those trading currencies, commodities and indices, the same doesnt necessarily apply. Your biggest asset here is your system. Your system is based on your own experience, it meets your own goals and risk tolerance levels. Systems take many years to develop, sometimes decades. It doesnt come easily. The notion of developing a system is similar to separating the two types of stocks on the market but because currency and commodity markets are so much more diverse, the system needs to also be robust enough. This is why businesses like Invast have spent years developing their own proprietary software like ST24, which combines the best systems around the world and bring them to individual investors.
- 11. 11 We will continue to expand on this notion into the future. For now we just want you to know that humility is vital. If you have been in the market for a while we suggest that you apply more humility to your planning into the new financial year. Your actual portfolio needs to start out with your stated goal, your own road map. What type of return are you targeting? Usually the most successful investors start with the risk free rate call it 4-5% in Australia at the moment and then add a risk premium to accommodate for their investment or trading. Usually the number comes out between 8-12% - this isnt a hard rule but most investors will realise that this is a sensible return to aim for as an average over a three to five year period. Once this has been established, investors and traders can then set their own asset allocation and trading system to meet this annualised goal over the medium term horizon.
- 12. 12 We cant provide any individual or personal advice in this publication but we hope what you have read above changes the way you think about the current composition of your portfolio particularly for those holding Australian listed shares. This weeks webinar is crucial, it comes at a time when the Australian dollar is falling and the global flight of capital out of this country is seeing a spill over effect on the stock market. I hope many of you who read this report attend the webinar and ask questions about the right way of thinking and the need to have an adequate goal and asset allocation framework in place.
- 13. 13 Stocks outlook: Join the webinar to discuss these points Invast Insights editor and contributing author Peter Esho will summarise the September outlook guide for the Australian stock market in this exclusive webinar. Esho is a regular contributor on CNBC, Bloomberg and host of Your Money Your Call. In his webinar he will outline: Performance of key blue-chip companies Performance of emerging smaller companies Outlook for the ASX200 index Portfolio management tips and tricks Peters webinar will cover both the fundamental and technical outlook going forward plus the key drivers to look out for and is expected to fill fast. Q&A will be open straight after the webinar. Register now by visiting http://www.invast.com.au/resources/webinars.aspx.
- 14. 14 Go to www.invast.com.au/insights to get a complimentary 4 week trial and receive the latest insights as they are published to our live clients.
- 15. 15 Disclaimer Please note that you are receiving this report complimentary from Invast Financial Services Pty Ltd (AFSL 438 283). Invast staff members may from time to time purchase securities which are included in this or future reports. The authors of this report may or may not be holding a position in the securities mentioned. Please note that the information contained in this report and Invast's website is of a general nature only, and does not take into account your personal circumstances, financial situation or needs. You are strongly recommended to seek professional advice before opening an account with us. General Disclaimer: This newsletter contains confidential information and is intended only for the person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast does not accept liability for any errors or omissions in the contents of this newsletter which arise as a result of downloading this newsletter. This newsletter is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any financial product. Invast Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).
- 16. 16 Risk Warning: It's important for you to read and consider the relevant Product Disclosure Statement, and any other relevant Invast Financial Services Pty Ltd documents before you decide whether or not to acquire any financial products listed in this email. Our Financial Services Guide contains details of our fees and charges. All these documents are available here on our website, or you can call us on +612 8036 7555. CFDs and Foreign Exchange are leveraged products and carry a high level of risk and you can lose more than your initial deposit so you should ensure CFD and Foreign Exchange trading meets your personal circumstances. General Advice Warning: Being general advice, this newsletter does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
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