Investors use all kinds of indicators to help them make decisions. Economic data, graphs, relationships and even tea leaves. I keep a close eye on the valuation statistics such as price limitation and credit spreads, as well as measures from investor sentiment.
Unfortunately, none of these tools always work, what raises the question: if they are fallible, are they valuable?
Investing is difficult in this regard. You can do the research, assess all variables and still get a bad result. The share is perished and never recovers, or the fund performs behind for years. Similarly, you cannot do research and be rewarded. A tip from a friend works, even though you know nothing about what you bought.
With the WNBA season on my way to the play -offs, I will strengthen the point with a basket balanalogy. A player can make and miss a high percentage of shot or a low percentage of recording and making. The outcome does not make the missed shot a bad decision or the made shot a good one. In the course of a season, teams win better shots and players who hoist Hopshots on the couch.
Successful coaches and investors focus on what they can control. They put the opportunities to their advantage and leave arbitrariness and happiness over time.
One-time
This means following a strategy in which the opportunities get better with time, in contrast to the use of many one -off tactics, each with a lower chance of success. Many indicators fit in the last category. Win or loss, the chances are not better next time.
Betting on what the stock market will do every day is a coin throw. The markets have risen approximately 50 percent of the time, a decrease of 48 percent and 2 percent flat. It is the same bad chances every day. But if you base your strategy on which shares will do more than 10 years, your chances will approach 100 percent.
Similarly, it is great if you get an economic telephone conversation (difficult) and predicts how the market will react (harder), but it does not make the next call any easier.
Daily trade and short-term strategies are generally dependent on unicators, such as interpreting a news or the search for price momentum on a graph things that can influence a stock price from minute to minute, but have no influence on the ultimate success of a company.
Good wine
Fortunately, investors with longer time frames can look at more concrete indicators who will influence the results – things that have no predictive value in the short term, but, given the time, increase the chances of success.
Long -term shares: The most obvious example of increasing opportunities is the possession of shares. The evidence is overwhelming – beating shares of bonds and gics. However, it only works if the time horizon is years, not days, and you will stay with all types of markets. Going in and out reduces the chances back to those of a mint throw (or worse if the emotions run high).
Valuation: For a good company to be a good investment, the price paid must be useful in the context of future profit and dividends. Likewise, higher return bonds are only useful if the extra income fully compensates for the increased standard risk.
Capex -Cycli: For cyclical industries I keep an eye on the level of capital investments. When everyone builds factories or mines, surplus delivery and lower profit on the horizon. Conversely, when times are difficult and companies withdraw to Capex, the prospects for investors become more interesting.
Cost: And you should not forget the most verifiable variable of all. The costs of investing are part of the comparison to determine what to spend when retirement. If it concerns trade committees, financing costs and compensation of advisers, do not pay for something that you do not need or do not receive.
In the beginning I mentioned investor sentiment. It fits between the two categories. It is not fundamentally for the success of a company, nor is it a precise timing tool, but knowing how greedy or frightening investors put other indicators in perspective. Are you swept in the story or sticking to strategies that have the best chance of success?
One of mine Favorite television advertisements Starts with Michael Jordan who says: “I missed more than 9,000 shots in my career.” Just like the greatest baller of all time, investors will have poor results. It is inevitable. The best way to deal with fallibility is to first accept that not everything will work. Then concentrate on making high percentage recordings.
#indicators #fallible #valuable