8 Tools For Better Investing And Trading

The investment process is difficult and enormously complex, which was part of the appeal that led me to money management and to now publish the Global Investment Letter. I thought it might be helpful to others to offer some observations to make the task a little easier, based on my study and hard-earned experience.The “rules” presented apply to both trading and investment. I find it at times difficult to separate the two, as even the longest investment starts and ends with a trade.

The list is not meant to be definitive and is necessarily brief. I could easily write a chapter on each topic. Most of the concepts are hardly new but bear repeating because they have proven to be important in my experience. My investment career has provided me with such intellectual challenge and pleasure that I want to share these observations with others.

1) Invest/Trade To Match Your Personality

Everyone has their own unique attitude towards risk and volatility. Invest and trade in investment vehicles that reflect your temperament. I have long maintained that people are more risk averse than they think they are. Assuming more risk than you’re comfortable with is stressful and emotionally destabilizing, which leads to poor decision making. There is an old saying, “if you don’t know who you are the markets is an expensive place to find out.”

2) Reduce Position Size

Position size and diversification are basic risk control tactics. Smaller position size reduces volatility and potential losses on individual positions. I have known professional traders that have notes pasted on top of their quote screens to remind them of this concept.

3) Don’t Trade Around Earnings Announcements

The markets can severely punish the share prices of companies that miss their earnings estimates by even a slight amount. It is best avoid initiating or adding to positions ahead of earnings announcements. Similarly, if one is thinking of selling a position, it is advisable to do so ahead of an announcement.

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Global Investment Letter is a monthly journal that analyzes major global markets from a fundamental and technical viewpoint within the ...

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