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InvestorEducation / Learning to Invest May 11, 2008 - 08:22 PM GMT

By: Nadeem_Walayat

InvestorEducation

Best Financial Markets Analysis ArticleMany small investors seem to repeatedly make the same old mistakes of either getting on board of a trend just as the trend ends or holding onto to losing investments in the hope of an eventual bounce back.

Therefore this weeks newsletter has a mix of education as well as up to date examples of strategies that illustrate how investors need to gear their thought processes towards key elements of successful investing which include :


Focus on the Fundamentals

The dot com bubble was a clear example of where many investors ignored the fundamentals and were subsequently penalized with losses of more than 90% on many of the stocks that failed to have any fundamentals in support of high price earnings ratios.

One of the keys to long-term success in portfolio building is to focus on companies that provide consistent earnings growth backed by strong fundamental outlook for their sectors. For instance over recent years the Oil sector is a clear example of having strong long-term price fundamentals in the face of peak oil, which has resulted in companies providing consistently strong year on year earnings growth. This coupled with the third key factor of consistent growth in dividend payments contributes to solid portfolio gains in the long-run.

Another sector that exhibits strong long-term fundamentals is Water utilities. Yes these sectors are unlikely to experience booms of the likes of the dot com boom, but neither are they likely to experience something along the lines of the dot com bust. So focus on strong long-term fundamentals to deliver consistency in portfolio growth.

Don't Get Emotionally Attached to your Investments

Gold seems like an apt example at the moment of investors getting carried away with emotional attachments to the precious metals stocks. It did not take a genius to realise that when gold surged beyond $1000 that it was primed for a significant correction, this has happened and saw gold decline to below $850. A dispassionate view on gold would have had gold investors taking profits by the use of stop-loss. How many failed to reduce exposure to gold as it fell and triggered technical sell signals ?

Investors need to have mechanical triggers for both entry in terms of adding to positions, and exit in terms of banking profits and preventing losses so as to avoid emotional attachment to positions. Without these investors may give up much of the gains made on the upside on the way down.

For the rest of this article please subscribe to our FREE Newsletter.

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

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