|Most advice is aimed at traders.
You need to realise that investment is different.
When you buy an asset - say 100 shares in BP - you may do so with
the intention of profiting from the subsequent flow of dividends
plus an increase in the share price. You hope the dividend rate
will grow. And an increasing share price will probably follow an
You may chose to hold your shares for ever - in which
case you benefit for ever from the dividend stream. Or you may chose
to sell your shares at some point, maybe to spend the cash but more
likely to buy some other asset. Whatever, during the time you have
held the shares you have profited from the wealth, both actual and
prospective, generated by the BP enterprise.
This process is called investing. It is long-term
in intention. Though it may turn out to be short-term.
Alternately you may buy 100 shares in BP with the intention of selling
them at a profit. You expect the price to go up. When it does, you
will sell. It may be that a dividend will drift in while you are
holding the shares but that is usually irrelevant to you. Your sole
rationale is that you have judged, by some means or other, that
the shares will go up. You do not care about the actual financial
performance of BP, except to the extent it affects the share price.
This process is called trading. It is short-term in
intention. Though it may turn out to be long-term.
Why should you be interested?
Because good buy/sell decisions depend on your knowing what you
are doing. A sensible action for a trader might be wrong for an
investor, and vice versa.
You might find a parallel in the antiques business.
A fine piece of Dresden china might be reasonably priced, within
your budget, fill a gap in your collection and be beautiful in itself.
As a collector ('investor') it would be absolutely right for you
to buy it.
It might also be true that a number of similar pieces
are on the market and the regular Dresden dealers are lukewarm.
As a trader it would then be absolutely wrong to buy it, because
you would find it hard to re-sell. But it's the same piece of china.
Now, all this matters because you are bombarded with advice - from
newspapers, TV, the man in the pub. But most of this is actually
about trading, although it may not say so. Trading, after all, is
fast-moving, sexy, glamorous and good copy. Investing is slow, grinding
and dull. Which one sells the most newspapers? Which one do you
want to discuss over a pint?
You are an investor. You have to be able to filter
out advice aimed at traders (which is most of it).
Here are some types of advice that may make sense to a trader but
not to an investor:
- Any recommendation based on
charts, share price movements or 'market sentiment'
- Any 'pattern slogan' - eg "sell in May and
- Any form of decision related to the price
you bought at - eg stop-losses
- Market gossip
- Short term price prospects
And here are some things that may influence
an investor but not a trader:
- Company performance
- Management quality
- The business economics
- The business plan
- Risk issues, and particularly asset allocation
- Personal tax issues
- Long term value
- Long term economic trends
To sum up........
Most successful market operators combine some elements of both investing
and trading. But this website is not for them. This website is for
inexperienced savers. And to you we would say:
- Trading is a technical process requiring
a lot of skill and even more experience. You don't have either.
- Most published commentary is for traders,
not investors. Therefore you should ignore most published commentary.