Forum Archive Index - December 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

1.Introduction.

 

Where do I start? Let us have a look at the log scale of this DJ chart:

< http://www.lowrisk.com/djia100year.htm >

 

It is true that over time share prices tend to rise but there are also periods when these can be static ( move within a few hundred points as the NZSE has been doing ),

 

Worse still, after a boom period there can be sudden heavy falls.

Most of the time the investor will be warned well ahead of such an event but many don't want to recognize the signs.

Markets may not act rationally or delay making required adjustments!

 

Some investors study Indices. An Index is a group of companies with certain common characteristics.

 

At any given time, some indices perform very well, while others won't.

 

Technical Investment Trusts had a very good time in the Dot.com boom while the more fundamental  investments suffered.

 

Then we have the cyclical stocks which have boom and bust periods. Gold stocks were cherished in the past, but many say that gold has become a commodity.

 

The debt markets are also important: < http://www.freecfm.com/a/ausinvest/main.htm >

The relationship of share prices and interest rates will be of concern to the investor! Knowledge of the interest rate cycles can be very rewarding!

 

It is therefore important to know what makes investment markets "tick" as it can affect your investment! 

 

While all investors misjudge the market from time to time, costs will be reduced by increasing knowledge of the market. That takes time! This series was designed to assist you!

 

2. Tools available

A short course in the reading of Annual Reports, including Balance sheets and notes, is a good beginning. The NZSE also provides some background:< http://www.nzse.co.nz >

 

Investment nomenclature is found in: < http://www.sharechat.co.nz/archives/2001/11/msg00668.shtml >

 

Sharechat Education provides further backing. ( Click on "Education" ) A study of Annual reports from certain companies, can be rewarding! It is best to look for the strengths and weaknesses of a company.

 

A good source is: < http://www.sharechat.co.nz/cgi-bin/msgboards/board_show.pl?id=11 >

 

Snoopy, a co-author of this LTI series and Philip Robinson are the main participants. New concepts are discussed as well.

 

You also have access to: < http://www.sharechat.co.nz/archives/2001/11/msg00212.shtml >

 

This "List of books" has titles recommended by experienced investors!

 

The two key articles written by the co-author of the LTI series, Peter Maiden, give some valuable advice! 

 

Maximizing profits while minimizing opportunity costs are ideals wanted by every investor!

 

Some beginners start with "dry investing" - recording selected investments without laying out any cash.

They continue doing so till they obtain some confidence.

 

Others start by putting in small amounts of cash in a few companies; normal brokerage fees would be prohibitive but they are using an online broker, instead. Some Brokers have systems which allow for drip feeding of deposits to be used in an investment. 

 

Some of the readers will be impatient to get into TA ( Technical Analysis ). My opinion is that understanding the  fundamentals of a company will give the extra leverage to trade more successfully on a longer term basis.

 

Fundamental ( FA ) theory and TA are complementary: < http://www.sharechat.co.nz/archives/2001/11/msg00734.shtml >   

 

Phaedrus, a co-author of this LTI series, has prepared a lot of excellent educational TA material. 

 

Please note that Futures, Option- and margin trading have not been discussed.

 

One could say that judgement is the main ingredient in investing. To make a good decision, we need knowledge. To apply it, we need capital and timing! 

 

Happy and sound investing!

 

Gerry

NB: This article replaces one written on 13 Dec. 2000. At that time there were no co-authors.