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Strategy
No. 1:
Understand the Nature of the Share Market
Recent company floats,
particularly Telstra, led many first-time investors to
believe that the share market is an easy way to wealth
creation, a virtual cash cow. This is not the case,
though profits are certainly there to be made.
Although many first-time
investors have seen the value of their investments
increase dramatically, it is important for them to
understand the true nature of the stock market. The
market is a volatile and unstable creature. It has had
periods of frantic booms, during which many investors
have the opportunity to accumulate great wealth. But
these booms have usually been followed by severe
downturns, during which time many investors have lost
out. Particularly hard hit are those who are highly
geared, that is those who have borrowed large amounts of
money to purchase their shares.
One successful approach
to investing in shares is to be a counter cyclical
investor. This means attempting to buy shares during
periods when the share market is weak and selling the
shares once the market has risen. The main problem with
this approach to investing is that it takes courage to
buy shares when the mood of the market is glum and when
all the papers are talking doom and gloom. It is also
brave to sell your shares when everyone else is buying,
but it is worth trying, as the results can be fantastic.
Next:
Understand the Investment Clock
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