The sharemarket is not a place for inexperienced investors and would-be share traders. This is a warning for mum and dad investors as well as stock traders who are dreaming of a quick buck. Before you step into the markets, you must ask yourself why do you want to trade the stockmarket?. You do not want to be gambling your money away by trading. You also need to be realistic about your expected returns. This blog Trading Critic is in itself a cautionary tale of the financial industry surrounding the markets: share trading, stockmarkets and forex trading. There are many things that can go wrong for the retail trader. That said, many things can go right too. What is important is that you are aware of the pitfalls and dangers of trading and investing in the stockmarket before you actually execute any orders.
What can happen to unsuspecting inexperienced sharemarket investors and traders? The positive outcome would be you receiving a positive cashflow from the dividends and a healthy capital growth rate for as long as you hold the stock. On the otherhand the negative outcome is totally the opposite (obviously), while you can't receive negative dividends, you would probably experience a negative capital growth with the fall of the share price. Hold on – isn’t this all OBVIOUS?! Why are you wasting my time? No I’m not. Another pitfall YOU MUST WATCH OUT FOR, a warning you must heed is to read and understand the fine print of a stock before you execute the order.
Sharemarket Warning: Read the Fine Print
You have been warned: read the fine print. Take in point: the case of BrisConnections which has been in the news lately. You know the company which Nicholas Bolton of Australian Style Investments made some money by buying up a substantial stake ($47,000 with $97 million worth of liability) and then selling the voting rights to Leighton Holdings. The actual BrisConnections share which could have been bought freely like any other stock on the Australian Stock Exchange had some fine print attached to it (you had to either just "know" because you read the financial news or have read their Product Disclosure Statement (PDS)). The fine print was that the stock was structured with some attached debt. Similar to T3 in that you were expected to pay an instalment by a certain date. Now there are at present 135 former unit holders of BrisConnections whose companies are at risk of being wound up or individual shareholders facing bankruptcy because they could not make the extra payments they were obligated to on their units. Here is a doctor who was affected by this:
Last weekend The Australian had a report about the CMC Market's Australia Managing Director - David Trew having to take out an AVO (Apprehended Violence Order) for a client. I've heard pretty bad things (rumours only) about CMC Market's clients and CFD trading. Nothing substantial. I guess this client took it to the next level...
It's funny how the news report about David Trew and the frustrated CMC Markets client was written. The report actually made the front page of the broadsheet's weekend issue with a massive photo of David Trew himself. The report infers that there is something fishy going on but doesn't really point fingers. It highlights how one client has taken steps to vent his frustration of losing money from trading. Then it highlights how CFDs is a little "shonky"/"shoddy" because it isn't allowed in USA, and it was used by a collapsed broker. and I agree that contracts for difference are "one of the riskiest financial instruments on the market". They are a double edged sword. The article ends in a slightly twisted note of how Mr Trew is living large while this bloke is obviously suffering financially.
The question is... what next? It is a highly "known" fact (well people always mention it but there are no numbers to back the statement up) that most traders lose money. With CFD's those losses are multiplied because of the massive leverage which is readily available. If you lose money from trading - especially trading CFD's you are personally at fault. You must accept that you, and you alone are at fault. Because you must do your own due diligence. CMC Market's have an easy to read PDS which explains the risks. If you can't handle the risks, or take steps to prevent those risks from eventuating, then don't trade. When the losses come and you can't accept it or handle it - don't trade. If you can't confidently take a risk on the market with your money - don't trade. If you haven't educated yourself about sound trading principles - don't trade. There is no such thing as a lucky gambler on the financial markets.
Are you greedy and gullible? I hope not. But if you are reading this post, you must either be in the business of making money or just in the search for making an easier buck. Flip open the classifieds section of your local newspaper and you'll find plenty of programs promising easy money. Make $5692 in 7 days selling health supplements, cosmetics, jewelry, lingerie or clothes. The advert claims the money is easy. "Fire your boss!" They claim. Of course, these types of advertisements come in all shapes and forms, some extremely tacky and are obviously targeting the very desperate to advertisements that target the "smart players" or the white collars with something that may seem very easy to do but in reality it is rare to succeed. I am not going to point fingers at companies, but they are out there. Some are MLM companies and others are involved in share trading or options. I've seen companies try to entice people to buy their products purely on the basis of gullibility and greed. Other products companies try to promote on this same pretence are resume products, software and other informational "learn to do it yourself and sell your service" type courses.
You know what? It collapsed. The fund collapsed and all the investors are left with is whatever the Administrators can dig up and claim back. Which fund? The fund that had unrealistic returns and benchmarks, the one that promised 109% return in three years. According to this SMH article, administrators have been appointed voluntarily to the company, Australian Capital Reserve (ACR) Group on Monday (28th May 2007). The fund has A$330 million invested with a total of about 7000 investors. An administrator called McGrathNicol has been appointed to review the property development investments of ACR to look for strategies to "maximize the potential return to noteholders, secured lenders and unsecured creditors alike." This company is the third property group to fall in recent years, previous flops include Fincorp and Wespoint.
"ACR was not unknown to the corporate regulator.In 2004, the Australian Securities and Investment Commission (ASIC)examined the prospectuses and selected advertising for debentures issued by 11 companies, including ACR and Fincorp, offering high-yields such as interest rates that were four per cent per annum above bank term-deposit rates. ASIC said high-yield debentures were typically a risky investment, and there was no guarantee that investors would get their money back. The corporate regulator expressed concern the advertising for high yield debentures was aimed at retirees, and featured images of happy older couples. ASIC also forced ACR to lodge a supplementary prospectus in November 2005 due to concerns about a lack of disclosure of ACR's financial position. ASIC also blocked a cash-strapped ACR from raising money from retail investors in March this year."
An Australian Capital Reserve (ACR) noteholder information session will be held on June 4 at venues in Sydney, Brisbane and Melbourne.
Share Trading is gambling. There. I said it. The worldwide stockmarkets are one big glorified casino. Or is it? It depends on how you see it: your perspective. I've defined what gambling was and concluded that trading WAS NOT trading in this article at MyShareTrading.com. But I revisited the idea after discussion and reflection about the topic with a few colleagues and I eventually turned my perspective to conclude that trading WAS INDEED gambling in "Gambling Revisited". To keep the argument simple, everything in life involves risk. Driving a car is risky. Having a job is risky. Setting up your own business is risky. Living is risky. And so Investing is risky. Owning a house is risky. Trading is also risky. And so anything to do with risk, playing the odds for a "positive" result, is a gamble.
Personally, I associate share trading with gambling because it is so similar to a visit to a casino. Professional casino gamblers usually have some sort of gambling system they follow. And in turn, professional share traders (or stock traders) also have a system or a trading plan which they follow. Both want returns. Both ventures aren't creating anything useful except a positive reward if the odds go your way. Investment isn't usually associated with as much risk as it is usually longer term compared to share trading. Investment can include property, longer term stock investing or putting money into a business venture. Why aren't they associated with as much risk as short term share trading? Because the results can be researched more thoroughly, and because of the long term nature of the investment, actions can be taken to fix or improve returns. But in my mind, it is still a gamble - just in the longer term. You make your own mind up.
We all do it. We're only human. Stupid trading mistakes. That's right, trading mistakes that are plain stupid. Remember that Japanese broker who put in the wrong figures and ended up losing the firm millions of dollars? For amateur traders, or should I say, retail traders any mistake of that magnitude translated in our home office would almost certainly mean financial ruin.
Yes, you have a trading goal. Yes you have a trading plan - and in that plan you have a money management plan, a trade entry plan and a trade exit plan. And surely if you execute that system to the dot you would be certainly in profit? I'm not talking about erroneous trading systems here. I'm talking about the minor human mistakes that traders can make in between making the decision to enter and executing the order and the time when you have decided to exit and execution of that exit strategy.
Yes, I'm talking about the typos and pressing the wrong buttons when you surely intended to press the other button. It happens. Minor mistakes can be costly. So besides your other plans, you should also have a systemised approach in checking and cross checking your orders when you do execute them. One such simple system could be to type in the number, or if possible set a default in your system. Check if your trading system tells you to go long i.e. BUY, or to go short, i.e. SELL and then press the relevant button. Double check your order ticket, then double check your executed orders as well as your account balance to make sure everything has been processed correctly. And here's one final tip: don't trade under the influence of any substance and don't trade wen you have just woken up two minutes beforehand.
David Tweed, the notorious share raider has again made an approach to shareholders to purchase their shareholdings at a discounted price. David Tweed had recently approached AWB shareholders back in November 2006, hoping to convince shareholders to let go of their stock at $1.50 when the ongoing market rate was around $2.71. This time, David Tweed has sent out a letter to Commonwealth Bank (CBA) shareholders in a bid to buy their shares at $35 per share. CBA shares were trading at around $48.75 when the offer was made - some 28 percent discount to the actual market price.
What does Hawkish mean? We've heard it a lot lately in the financial news. "RBA maintaining a hawkish stance", "Yen gains as BOJ keeps up hawkish rhetoric", "Paris shares close higher, supported by less hawkish ECB comments", " Euro gains brief boost from hawkish Trichet comments" and "RNBZ Gets Hawkish, And Does Nothing". We all know that a hawk (noun) is a, "relatively small diurnal bird of prey with short rounded wings and very good eyesight which hunts by pouncing on small birds and mammals." To go hawking (verb) is to hunt with a hawk. To be hawkish – the adjective form of the word is simply described as "like a hawk". So in financial terms, what is the definition for hawkish?
The definition of hawkish is this: it is an aggressive stance. Just as a hawk is aggressive in hunting its prey, being hawkish relates to the aggressive stance taken with regard to the topic. For example, if there is a threat of high inflation, to describe the reserve bank of a country being hawkish in any official statement may mean they are leaning towards a stronger action such as favouring an increase in interest rates to dampen high inflation. The antonym (opposite) to hawkish is dovish. Good luck in your trading!
The Price to Earnings (P/E) Ratio is the most commonly used valuation metric used by investors to help determine is individual stocks are reasonably priced. It is a simple ratio to calculate but can be confusing to interpret. The ratio can be useful in some cases yet useless in others. The ratio was popularized by Benjamin Graham - author of "The Intelligent Investor" (a must read for all serious investors). Graham used this financial ratio as a quick way to determine if the company stock was trading on an investment or speculative basis.
Religion, politics and trading. At first glance they don't seem to have anything in common. However, there is something that ties these seemingly different topics together. We'll delve into that later. What you will find out in this article (the professional trader's secret) is important for your own professional trading health and safety. You may think your trading is FINE but if you don't use this secret tactic in your trading, you are bound to be a loser. Save yourself that distress and keep reading!