Where to start when it comes to trading/investing?

nomore4s said:

There is no tax reflected in the spreadsheet because nothing has been sold which means there is no tax payable on the capital gain yet and the dividends are fully franked, which essentially means the company has already paid tax (normally at 30%) on them so the tax on the dividends is minimal for most individuals but it is probably best to do a google search on fully franked dividends and see how it might affect you. This is another advantage of this sort of investing.

As for my other portfolios I just put aside 50% of the profits and then pay tax out of that when required.

There are a few other things from your earlier posts I will address as I get time.

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which was what my understanding was until someone on another forum said otherwise. I am not putting in a cent until I have full tax advice anyway but thanks this makes more sense to me.

Here is a fool proof step by step how to get into investing:

1. Pay yourself first, basically take a % or $ amount out of your pay, treat it as a bill like you would rent, electricity and keep it for investments only. This is money you can afford to lose.

2. Choose your long/mid/short term goals for your money. Example, mine long are able to own a nice home, a beach house, 1 overseas trip a year and be able to work if I want to, rather than have to, mid term in 2-3 years is to buy my first home, short term is to grow my 1st home deposit from 17k to 26k this year.

3. Look at which investment class you are going to focus on, stocks, property, business, other, only choose one to focus on first, as it's hard enough to master one asset class (Warren Buffet only invests in one of these assets and has done well)

4. Ask yourself what type of investor are you? Active/passive or a mix of both? Value investing, income investing, IPO investing, buy and hold, day trader, cyclic trader, etc. Example, I like buy and hold/value investing, I'd rather buy a tree and get a regular outcrop of fruit each season that chop it down for firewood and then plant a new tree.

5. Learn all you can about your chosen asset class, read books, newspapers, websites, talk to people who have proven themselves successful, talk to people who know nothing about it and observe the difference, etc. You will do more of this if you want a more hands on approach as you will need to be informed daily, eg day trader.

6. Learn from your mistakes, even great investors make mistakes. Learn to control your emotions, learn what constitutes a good and bad buy price/deal.

7. Rinse and repeat. Once you feel you have mastered an asset class, keep at it or diversify out to the next asset class.

Example for me. I save roughly 25% of my income solely for investments, this allows me to pay bills and still have some fun spending money. I have already explained my short/mid/long goals above. My chosen investment class is property. I'm a long term value investor. I read websites, newspapers and books. I don't go to seminars. I've learnt to control my emotions in my investments and buy only if the deal is good based on the facts, not on my excitement. I'm saving up for my first home currently so don't want to take huge risks with my money.

There is a basic blueprint on how to get started.

As far as putting it into practice, I did pretend examples on excel of real estate income/expenses/mortgages, etc, went to open homes, talked to real estate agents, etc.

As far as stocks go, I read up on newspapers and annual reports.

NewOrder said:

which was what my understanding was until someone on another forum said otherwise. I am not putting in a cent until I have full tax advice anyway but thanks this makes more sense to me.

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If considered an out and out trader you will be taxed in a different way but for the example in the spreadsheet it is an investment so capital gains should apply on any profit. But like you said - see a tax professional as we all know how distorted tax matters can become.

ENP said:

Here is a fool proof step by step how to get into investing

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Nice post, ENP. But I thing we should give nomore4s some time and space to go through his methodology before we start posting our own methods and suggestions. It would make the thread cleaner and easier to follow. Thanks

NewOrder said:

which was what my understanding was until someone on another forum said otherwise. I am not putting in a cent until I have full tax advice anyway but thanks this makes more sense to me.

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Perhaps bear in mind that if you do whatever investing you plan to do within Super, you will only pay 15% tax, and then no tax at all once you move into pension phase.
If you have a reasonable level of capital, a SMSF makes much sense.

Julia said:

If you have a reasonable level of capital, a SMSF makes much sense.

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What would the minimum amount need to be Julia ?

I have been thinking really hard about SMSF lately as my super fund is just flat out poor!! They have achieved only 5.9% in cash, diversified and high growth!! (Can’t believe they are the same % on all three) over the ten years ive been it.

Julia said:

Perhaps bear in mind that if you do whatever investing you plan to do within Super, you will only pay 15% tax, and then no tax at all once you move into pension phase.
If you have a reasonable level of capital, a SMSF makes much sense.

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Thanks Julia, this opens up a whole new level of thinking. A SMSF was something that was not in my plan at all. Is it viable if I split my start up capital from the long term portfolio and say put $100k into a SMSF, is this enough to start one? I do have about $25k in a super fund somewhere, could this be consolidated into a SMSF?

ETA snap toocool, similar question at the same time.

For years 'experts' dictated that you needed more than $200,000 to start a SMSF, to make the costs justifiable.

I think they've had to retreat from this somewhat as organisations like Esuperfund
have entered the market. I've never used them, but believe they offer free set-up, plus the first year's tax return and audit for under $1000.

So, considering the % fees charged by most of the public super funds, you're probably going to be better off with DIY, provided of course you know what you're doing. Not much point having a SMSF if you don't know how to make money in it!

Have a read through this thread which, from memory, I think covers most of the points you need to consider.

https://www.aussiestockforums.com/forums/showthread.php?t=15589&highlight=Super

Good catch Julia a SMSF is a very viable option, especially for the Income portfolio but let's try not to get this thread too far off topic. So maybe all related posts in regards to questions on SMSF re:setting them up etc could be posted on the thread highlighted by Julia, that way this thread won't get too cluttered.

Thanks

NewOrder said:

Yes I ideally do want capital growth as well as dividend income. OK you have highlighted a massive problem with being a naive newbie as I had not written a strategy about this in my trading plan.
I will have set FA criteria for the stocks I buy but have not put in my trading plan what to do about stocks that do not show capital growth or indeed what level of growth I am seeking.

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At least you've found the problem now and not after you've invested money in the market and caught out by one of the scenarios.

Do you mean here to spread entry for one particular share across a longer time frame or to generally spread buying stocks for Portfolio 1) over time?

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Both, depending of course on how much money you have at your disposal. If only buying $5k of each stock you are probably better off just buying all of that stock at once but if buying $25k+ it might be better of spreading it over 2 or 3 entries, purely to make it easier psychologically if the stock goes down straight after buying it. And I probably would not buy the whole portfolio at once even if it is highly diversified for much the same reason.
By slowly drip feeding your capital into the market for a portfolio like this you can spread your risk a little even though once fully invested you will be carrying the same risks. But the advantage is probably more psychological as how much harder will it be to stick to the long-term plan if your portfolio is down 25% straight after buying it?

These are the sort of things our plans needs to cover. How will you deal with a 20-25% drop in the first year? How will you deal with a 20-25% capital gain in the first year? Will this change your thinking - ie cut and run on the loss or take the gain and run on the win? You need to have an idea on how you will react if the worst happens and how you will react if the best happens (trust me, both can be hard to deal with).

You need to be very clear on why/when you will enter stocks and why/when you will exit stocks and you need to know that the strategy works (back-testing, paper-trading etc etc). This applies to all forms of trading/investing over all time frames (shorter time-frames require more accurate entries & exits imo as the smaller the movement you are trying to capture the more precise you have to be). And then you need to be able to apply this with patience, consistency and discipline.

Thx for the thread Nomore4s
I have a question for Portfolio 3 Swing trading
Do you set stop losses for the trades or just trade on the fundamentals?

Caveman said:

Thx for the thread Nomore4s
I have a question for Portfolio 3 Swing trading
Do you set stop losses for the trades or just trade on the fundamentals?

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Portfolio 3 is traded purely off charts, so there are stops used. The Income portfolio is the only one I don't use hard stops for, I have an exit criteria it is just not at a set price level due to what I'm trying to achieve with that portfolio - but it is essential you understand the risks if trading/investing like this.

While I call portfolio 3 swing trading I actually trade various strategies depending on what the market conditions are, and what is being offered up. It is essentially my discretionary trading portfolio. My hold time in this portfolio can vary from 2 days to 6+ months but on average it is around 2-3 weeks. I find fundamentals way to clumsy to trade these sort of time frames - probably because I'm not very skilled in fundamentals.

The only portfolio I pay any attention to fundamentals is the income portfolio, everything else is traded off charts. I am essentially a chartist, but understand that in the long run it is earnings that drive share prices.

I've spent a bit of time reading various threads today, including this one. I am the OP refered to above and am the first to admit that I don't have a proper investment plan and am looking for a better way of managing my share portfolio.

in 2006 - 2008 when I started my comsec account with $50K you didn't need a plan to make money - virtually whatever you did just worked. In those two years I was up about 20% when the GFC hit.

I did have a simplistic plan, In that I chose 10 companies from different sectors - all blue chip with probably an emphasis on mining/oil - $5K allocated to each. When a stock went up 10% I would sell. Often buying back into the same sector days/weeks later when the graph went down.

I didn't really have a sell policy - didn't really need it until 2008 - stocks didn't really go down by enough to panic - you just needed to sit it out. By 2008 I started doing some far riskier things, which taught me some important lessons. Most of the profits I made during this period came from buying and selling Gold and Oil shares - with LHG, NCM, WPL, ROC, BHP, RIO being particular favorites as the price fluctuations were quite large.

These stocks seemed to be good revenue sources as I made good profits from them buying low and selling days later at a peak. Anyway, I bought into AGL, Centro and Babcock and Brown days after they dropped significantly. A couple of times I made healthy gains on these stocks in a few days - I was gambling and sometimes it paid off. But then two of them never went back up and collapsed. All the other shares I had - despite being quite good - were also bought near the top of the market as I was gambling rather than investing. This didn't really bother me/stress me out as I knew they would eventually come back to life.

So for two years while my stocks were all in the red I just did nothing. Obviously NCM, BHP, AGL, CSL came back to life - IAG, WOW OZL AIO are still basket cases. So I'm pretty much back exactly where I started in 2006.

A couple of months ago, I sold the NCM for a good profit and re-invested it into the silver mine AYN - which hasn't been a bad idea - heck - it's gone up 37% since I bought it a couple of weeks ago. Went up 8% today.

Very easy to make money when the market is going up - experts everywhere in a bull market - I was an expert. Not so easy when in 2009/2010

I think 123567890 has some really interesting points and his/her strategy does make a lot of sense.

I just thought I'd have a look at the graphs of some of my stocks I own, just to see if a hold strategy would have been any better.

Pretty interesting, seems that if I did that I probably wouldn't have been any better off than I am now.

Stocks like ANZ, CBA, IAG, AGK have been flat or have gone down in 5 years and the miners have generally gone up.

Something really odd that I did notice. I have a purchase order for 52 RIO shares on 17/12/2007 for $142.000 However, when I look at RIO's graph i see a high of $124.19 in May 2008 WTF is going on with that?

LifeChoices said:

Very easy to make money when the market is going up - experts everywhere in a bull market - I was an expert. Not so easy when in 2009/2010

I think 123567890 has some really interesting points and his/her strategy does make a lot of sense.

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Bit short on time atm but just quickly.

Having goals, plans and strategies in place is about being able to make more money in the good times and to protect capital and get through the bad times. No matter how we trade/invest there will be times when the market will be ideal and times when it won't be, understanding how we are going to deal with both extremes and everything in between is a key part of successful trading/investing.

I've posted a graph of the All Ordinaries index from when I started investing in 2006 until today.



Seems I was better off gambling as I did than if I had just stayed on the boring steady as she goes route with a portfolio of blue chips.

I've thought about your spreadsheet and came to the conclusion that it doesn't match reality.

You've posted one stock - CBA you've put $5K into it each year for 15 years. You said you wouldn't do it that way yourself. So in reality maybe you may have 5 stocks - 5K into each of them each year is $25K per year.

Now I'm thinking if you had that much money idly sitting about each year you are already rich and investing is just a pastime, not serving a valid purpose.

Yes, everyone is an expert with hindsight, when the market is heading in an upward direction and you draw models that are not based on reality.

AYN up another 8% today - Go AYN

LifeChoices said:

I've posted a graph of the All Ordinaries index from when I started investing in 2006 until today.

Seems I was better off gambling as I did than if I had just stayed on the boring steady as she goes route with a portfolio of blue chips.

I've thought about your spreadsheet and came to the conclusion that it doesn't match reality.

You've posted one stock - CBA you've put $5K into it each year for 15 years. You said you wouldn't do it that way yourself. So in reality maybe you may have 5 stocks - 5K into each of them each year is $25K per year.

Now I'm thinking if you had that much money idly sitting about each year you are already rich and investing is just a pastime, not serving a valid purpose.

Yes, everyone is an expert with hindsight, when the market is heading in an upward direction and you draw models that are not based on reality.

AYN up another 8% today - Go AYN

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You really don't get it, do you?!

The spreadsheet is an example using one stock because I'm not going to spend countless hours doing it over a range of stocks but it is a valid method able to be used over a number of stocks.
Example - Starting capital of $25,000 and an additional $5000 per year.
Initial capital split over 5 stocks.
Additional capital then invested into 1 or 2 stocks each year(either new stocks or 1 or 2 of the original 5) as well as all dividends re-invested, growing the portfolio slowly but surely and letting compounding take effect.

This thread is not about that one system/strategy, it is about how to go about building a solid plan/strategy/system to meet your goals and how to be successful over the long term in all market conditions.

Now if you believe that what I'm posting here is nonsense and what you are doing is the way to go, fine keep doing what you are doing no skin of my nose. But I will not let you derail this thread, so unless you want to contribute something constructive to the thread I'd suggest you don't post in it anymore.

nomore4s I for one have already gained an huge amount from this thread. I have read the linked thread on SMSF and have had a couple of lightbulb moments thanks to you and Julia

No derailing please this a great thread for some of us. FWIW I don't read LC's posts as trying to derail.

Thanks nomore4s for taking time to educate us newbies.

nomore4s said:

I run four different portfolios all with different objectives and time frames. I will quickly outline the portfolios here and then go into further details in later posts.

1. Income Portfolio
- Build income stream from dividends
- My version of a buy and hold strategy (there is exit criteria although the goal is to never have to sell)
- This portfolio is about accumulation, a great deal of patience and long term vision is required.
- This is my retirement fund
- My money only - no leverage used

2. Long term growth
- Mechanical system trading - signals generated daily but are filtered at my discretion based on a checklist as I get too many signals to take.
- Aim is to capture long term trends (obviously works best in a bullmarket)
- Leverage is used, once a certain open equity level is reached as this lets me continue to grow the portfolio when conditions suit it and I've run out of capital.

3. Swing trading
- Discretionary pattern trading (charts)
- Higher turn over
- Leverage used on occasion
- I run a number of different strategies within this portfolio depending on market conditions and cycles.

4. Futures day trading
- Discretionary trading of indexes
- Can be the most profitable portfolio but is also the most stressful and time consuming portfolio. Also requires the most skill and discipline to run successfully day in and day out.
- Requires a fair chunk of capital to help migrate the risks due to the high leverage used.

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I have a couple of question on your strategy..

1) Can you explain about your exit strategy ? This is one area which confuses me. Would you sell stock at a predefined value, when making profit or loss ?
2) When price is going down how do you limit your loss ? How do you decide to take 1% loss 5% loss or 50% loss ? Can you explain your decision process ?
3) Can you explain about your risk management strategy ?

I have lot more questions would save them for later.

I am a newbie, in the process of reading books and getting a hang of stocks. I haven't invest any thing yet and won't be investing till I have a clue about what I am doing.

Thanks is advance, and honestly appreciate your help mate..

Cheers,
Sri

Hi Sri, welcome to the forum. I will get around to answering your questions but it won't be tonight as I am about to go to indoor cricket.

I just want to clarify this thread is not about my strategies in particular, it is about the processes that go into building solid plans and strategies to suit the goals of each particular investor/trader. But obviously I have used my strategies as examples as they are the ones I'm most versed in.

By having an understanding of what you want to achieve and how you want to achieve it - ie the type of trading and over what timeframe, it is easier to research and then practice and perfect the methods needed to be successful.

Take Lifechoices as an example again, he/she has decided to chase the more speculative end of the market for fast returns after 5 odd years of going nowhere, which is fine and there are plenty that are successful at trading that end of the market, but if that's what you are going to do why not build a plan and strategy around that to give yourself the most chance of being successful and maximizing returns instead of in Lifechoices own words just "gambling".

There is quite a bit more I want to get too but I haven't been able to find the time just yet.