Trading with Focus – Protecting your wealth
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Now that your Afterpay shares are being taken over (for 15% less than you probably paid for them), it’s worth talking about how to protect all that wealth you’ve been accumulating – on your journey towards billionaire-dom. Because in all likelihood the APT story could have ended very differently…
Firstly, I’m assuming you have a set of goals.
All sports have them, whether it’s being the first person to get to the other end of the pool or trying to skateboard the best …? You shouldn’t play the sport of capitalism or share trading any differently.
So maybe you want a new jet-ski. Or maybe you’re aiming higher… a jet-car? Jet-plane? The New York Jets?
Because if you don’t set goals, how would you know if you won? Or is your investment strategy a bit like Forrest Gump, running and running and running for no discernible reason, then just randomly stopping a bit to the north of Albequerque? (He was so close to Vegas too, such an unrealistic scenario…)
If not, stop reading now. Go set some financial goals.
Secondly, by now, unless you are some sort of masochistic sociopath, you should probably have an understanding of your own tolerance for risk. And how that risk-taking might affect those around you too.
I’m not talking about setting your cruise control at 2km over the speed limit, or taking out the bins on the morning of bin day (instead of the night before). What I’m talking about is the kind of risk where if all of your listed investments were suddenly worthless, and you were lining up for free soup, would you be cool? Or, what level of cool would you be if you lost ten grand, or twenty… or 50% of your dough?
If you haven’t, do it now (and remember that companies, big or small, can go broke overnight before you get a chance to sell out).
And my last assumption. You understand that making vast sums of cash involves either being very good at crime, being very lucky or putting in some work. Or a combo, I guess!
But let’s assume that you aren’t planning to do a series of unnecessarily intricate bank heists in your 2015 Toyota Camry hybrid getaway car, and you aren’t enrolling your kids in some Swiss finishing school on the basis of the $60m Powerball next Thurs and let’s just focus on the assumption that you are prepared to ‘put in the work’.
Quick summary – You have goals, you understand the sort of loss you can shrug off, and you are prepared to put some effort in.
Now before we go too much further, if you answered ‘dunno’ or even ‘maybe’ to any of the above… you need to go and see a financial advisor. Investing advice is a lot like medical advice, with professionals that have training and uni degrees and stuff. You can probably put on a band-aid by yourself, but you can’t remove your own gallbladder… safely. So don’t do it yourself just because it’s cheaper.
Seriously. Go and talk to someone who knows what they are talking about. Pay them a good whack of cash for their time and again for their advice. At least you’ll know then if your goals and investments and risk tolerance are in alignment, or whether you need to reconsider the heist/Powerball strategy.
Then, once you have your savings plan and your tax and superannuation strategy aligned, and have done a proper assessment of your risk tolerance, only then can you even consider what sort of investments to make.
So, assuming you’ve done all that and are still reading Stockhead and punting online, it means you are, by definition, a gamblin’ man/woman/other to some degree. You could be rolling cryptos and helium explorers and looking for the breakout on 88E once again as a chance to ride the momentum on the path to riches!
But that’s cool. No judgement. (well, not cryptos. I’d bet on an ant crawling up the wall, and even in comparison to that cryptos are risky!)
First. Have vast amounts of knowledge. Or failing that, information. Of the latest kind. And the more the better, and the more often the better. You need to monitor every move of every thing that happens everywhere.
Not just the news on your stock, but all news, everywhere, all of the time. And not just the price movements on the stocks you hold, or the new bidders and sellers that enter the market, but the ones that enter all trades everywhere!
The ‘butterfly flapping its wings creates hurricanes’ analogy is rarely more accurate than in the stockmarket and the only way to truly succeed is to soak up all that information, before working out what is noise and what is real.
You might think this is overkill, but remember that Z1P went up when there was a bid for Afterpay. Even though they are similar but very different, and in my mind, the fact that it was Afterpay and not Z1P probably devalues the potential of Z1P.
And you need to gauge whether there’s another takeover bid coming immediately, this time for Z1P, and take a view on whether the APT bid is being well received now on a global scale, and try to work out whether it’s actually good for Z1P because it proves the business model has global potential, or maybe Dorsey isn’t a Peter Gregory, but a Gavin Belson.
Or is it just going up because the markets have been going up… or was it short-sellers closing off their short positions, not actually people betting on a takeover.
And then reconsider it all again, based on every new piece of new news or movement in each BNPL stock or even every financial stock or every technology stock. And overlay it with Covid news, and what China’s next move may be… etc, etc and more etc.
Then, after this information overload, you still need to consider ways to minimise your losses in case you are wrong (or, as in all my bad trades where it was the market that was wrong!). And what to do – after the fact – if your investment goes against you.
Which is where we come in.
They say a picture tells a thousand words. But in stockmarket terms, the amount of words that a good share price chart can tell you is infinite, especially in relation to what many people use to trade – which is often just a case of ‘my mate told me to buy it’ or ‘because it was going up’.
Have you ever seen a single bat flying around? I have, it’s pretty creepy. Seems to be just blindly flapping about in the sky sniffing for blood (or fruit, I guess) which is because they are blind. But have you ever seen a full cauldron (or colony) of bats leaving the cave and noticed that as a group they actually move in a very obvious pattern?
This is just like the sharemarket. It’s just a herd of people, all battling fear and greed, all believing that someone else knows something they don’t, blindly flapping about in reaction to some noise. So they often move markets or individual stocks around in patterns too. And then react to events, and often they react incorrectly.
And, in fact, the pattern that most bats revert to is quite obviously a figure-eight when you scroll out far enough, to look at the bigger picture. Which could also be used mathematically to potentially indicate where they may go in the future. At worst, giving you a more educated guess so you can keep your neck veins out of their flight path (or fruit, I guess).
How cool would that be, knowing where a bat is going based on where they have been previously, according to the mathematical outcomes of bat-flight-research!
Well, in stockmarket terms that is called ‘technical analysis’.
So these trends can potentially, but not always, help you to choose when to buy, help protect you from downside and keep you on target for that new jet-ski.
There are 26 technical analysis tools in Marketech Focus, each with a different reason for being. Some help remove the random bat-flapping to show you the bigger patterns. Some show you where the bats may turn. Some will guide you as to when to sell out of the whole bat game – as just because they often fly in a pattern, doesn’t mean they will always fly in that pattern and you don’t want to have all your money on the bat that passed away from an unexpected bat disease…
(You actually want to get out when little bat-bat starts to show signs that he’s not feeling well, and not be caught trying to work out what to do when he is already lying on the ground, flapping his last flap…)
Use all of the tools and all of the information at your disposal to gain an edge and protect your downside.
Live-streaming pricing is better than live-pricing is better than 20 minutes delayed pricing.
Technical indicators and multiple chart types are better than line-charts are better than no charts.
Live-streaming expandable market depth is better than live depth is better than no depth at all!
And don’t start running if you don’t know where you’re going as you’ll end up in Albequerque, don’t try and remove your own gall bladder to save a buck, don’t think you can trade on a platform that is designed only to be ‘good looking and easy to use’ and remember that bats move in patterns.
But not all bats.
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Go to www.marketech.com.au to set up a free trial – you will be astounded by the simplicity and tools that this technology gives you. No spin, just low-cost trading and the tools that give you advantage over hype.
This article was developed in collaboration with Marketech Stockbroking Pty Ltd (AFSL 486148), a Stockhead advertiser at the time of publishing. This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.