The price performance of companies’ shares on global stock markets has today become commonplace discussion platform, on news broadcasts, internet blogs and general news bulletins. Not surprising then, is that there are as many opinions as to why shares move as there are analysts and other market experts. They loudly proclaim their expertise in the subject of what really influences share prices, and why – in fact – this is important or, for that matter, even pertinent to the layman. The questions you should ask are: ‘What makes you think that you know better than all the other experts? Why should I listen to you?’
The simple answer is, actually, also the simplest strategy: Do it your-
self! Do all research and analysis. Conduct your own surveys and never be scared of asking managing directors questions. Ultimately, you have to take responsibility for your trades, actions and decisions.
It is, after all, your money!
The basic economic principle of supply and demand affecting share prices is obvious and well documented, but what factors influence this supply and demand is not. Look at the assumptions used by experts in deriving their economic theories and question their relevance in today’s hostile trading environment. Similarly, the information revealed in financial statements is also important, but is it the only factor worth considering? What about political events, like war, terrorism, tsunamis, famine and so on? What about economic and business factors, such as interest rates and inflation, employment statistics and monitory policy? Does technology influence share prices?
Is technical analysis the trading bible that such analysts claim it to be?
It is easy to see what companies are doing well once the company has released financial results, by which time shares have often become more expensive. Similarly, by the time a company’s performance is obviously poor, the share price has already fallen. Yet, this is not always the case: some companies' poor results see share prices rise and, unbelievably, some companies' good results see share prices fall. Hopefully, by the time you have read this book, you will understand what drives traders to buy or sell securities.
Now, imagine if you could develop a trading system that makes consistent profits? Wouldn’t you love to be able to get up when you want? Even better, wouldn't you love to be able to ‘work’ in your pyjamas? Why bother with suits when you work from home? Imagine if you could just sit back at your own office, with your feet up on the desk, reading newspapers while your shares rise and prosper and dividend payments role in?
If you would love to live this lifestyle . . . let me be the first to disillusion you.
This situation sounds so ideal, but the attitude as displayed in the above ‘dream’ is the ultimate precursor to disaster. The successful trader is one that is extremely skilled and disciplined. He would NEVER dream of trading without a solid work ethic.
If your idea of the dream is to be independent and make a living from your efforts, then that dream is a reality and closer than you may think.
Become Your Own Stockbroker is the first step in turning that dream into reality. As you’ve probably guessed, we’re talking about trading shares and other South African securities. When I started out as an analyst in 1990, a colleague said to me that there isn’t another job anywhere in the world that enables you to build as much wealth over time as is possible in stockbroking.
The question I love to ask novice traders is: How do you trade without infrastructure, systems and an information database? What is your work ethic?
The stock market is, without a doubt, one of the greatest tools ever invented for building wealth. As many economists say around the world: ‘Operating in the corporate world is filled with union problems and strikes, government restrictions, cash flow problems, clients not paying and staff not being as diligent as expected.’
Working for yourself in the stock market pits your skills and experience against all the experts and market pundits around the world. You have no staff or clients to deal with, no restrictions on how long you work or what hours you decide fit your lifestyle. You are effectively your own boss or, stated differently, you can Become Your Own Stockbroker.
Stocks are a part, if not the cornerstone, of nearly any investment portfolio. When you start on your road to financial freedom, you need to have a solid understanding of stocks and how they trade on the stock market. Given the unbelievably professional tool that the internet has become, the stockbroker that you want to be must be a global one, trading across borders, securities and investment opportunities.
There is, however, a lesson that needs to be expounded before you start down that road. Despite the complexities involved in analysis of bonds, futures, options and shares, remember the following simple statement:
· You need to develop just two skills to succeed in any stock market:
· Without information you are committing financial suicide.
- Without understanding risk involved in a decision-making process you will fail.