Day Trading

I think that for many investors, especially young investors as young as guys in their upper teens and early twenties, day trading is very enticing. It is fast. It is risky. It feels like one is accomplishment. However, I think I lot of these feelings are misguided. As an intro to this topic, take a look at the following article written by Michael C. Thomsett for mint.com. The full article could be read here. 

"Most investors – particularly those just starting out or with limited funds to invest – are best served by a portfolio of mutual funds or exchange-traded funds that fits their risk tolerance and investment horizon. Then hold on to that portfolio for the long term, with once- or twice-a-year tweaks to make sure they remain in the proper asset allocation.

But there are many investors who, after years of researching and managing their investments, have built up a solid knowledge base of stock or fund picking and are willing to take it to the next level. (Others can simply afford to set aside a certain amount of cash to “play with” on the stock market.) Those people move money in and out of positions on a daily basis — and take their profits from day to day rather than waiting for months or years.

They are not simply investors – they are traders.

Most traders are continually seeking an edge in the market and, for many, short-term price movement is the key. Opportunities are found not in holding positions open for weeks or even for days, but by getting in and out in a single day.

But while great profits are possible, so are great losses. Day trading — buying and selling all within a single trading day — is high-risk and it is very difficult to consistently make a profit from this activity. In fact, timing entry and exit is far more complex than many novice traders realize. (You’ve probably heard it a million times already: most people who try to time the market aren’t successful.)

The goal of opening and closing positions within a single day is based on the belief that changes from one day to the next can be severe and impossible to manage. A day’s opening price is not always the same as the previous day’s close, so day traders want to finalize their trades to avoid the risk of potential price movements after hours. (These price movements are called negative price gaps.)

So how do they do it? To begin with, day traders use very short-term price charts. For example, instead of the popular and widely used daily chart, day traders might use a 20-minute or even a 5-minute or 1-minute chart to pick the best points to enter and exit positions. Deciding when to enter or exit (in other words, buy a certain amount of shares and sell them all) can be based on a broad range of momentum indicators, moving averages, or chart patterns.

Some traders use strictly their own money, while others borrow funds through margin accounts.

An interesting twist here is that interest on margin borrowing is charged only when positions are left open overnight. Because the rules for margin limits and interest are based on balances at the end of the day, a day trader can make trades that always close before the end of trading, essentially avoiding having to pay interest. This loophole is yet another incentive for a trader to enter and exit a position within the day — and has led the Securities and Exchange Commission (SEC) to establish a rule for “pattern day traders.”

A pattern day trader is anyone who executes four or more day trades within five consecutive trading days.

The rule: a person falling into this classification must keep no less than $25,000 of cash or equities in their margin account at all times. If this balance falls below the required minimum, no further positions can be opened in the margin account. Once the pattern day trading restriction is set, it remains for at least three months before you can have that restriction removed.

And if these margin limits and restrictions aren’t enough to make your head spin, consider the complexity of timing buy and sell decisions on a daily basis. It might look easy from the outside, but short-term trading is a high-risk business. If anyone tells you to try it because it’s easy money, take that advice with a grain of salt.

Remember: don’t trade with money that you cannot afford to lose. It takes only one big loss to wipe out several smaller profits."

Do you day trade? Agree? Disagree? Share your thoughts in the comments or on the G+ page!

Facts.....or Opinions of Investing?

The following piece is from Sandeep VishramSingh Yadav who works with Team Lead Client Management Inbestment Bank division at BNP Paribas. Originally posted here.

The very famous Aswath Damodaran says, the equity risk premium is the key to investing & valuation.

Ben Graham told once Mr. Market is there to serve you, not to guide you

In the Taleb’s language you buy – sell or you make omelette out of it depends upon your luck, randomness, Probability, Belief, conjecture, Theory, Forecast and Anecdote.

The most crucial investing question that I have noticed is: Do you know your time frame?

To cut short I am sharing 9 facts on investing below:-

1. Nine out of 10 people in finance don’t have your best interest at heart.
2. Don’t try to predict the future.
3. Saving can be more important than investing.
4. Tune out the majority of news.
5. Emotional intelligence is more important than classroom intelligence.
6. Talk about your money.
7. Most financial problems are caused by debt.
8. Forget about past performance.
9. The perfect investment doesn't exist.

Agree disagree? How would you order them? Which are facts and which are merely "opinions"? 

Small Business Saturday...Be Prepared!

Howdy all, 

Perhaps some of you know about this, perhaps some of you don't. Small Business Saturday is coming up (November 29th) American Express is offering until 11/14 - a free welcome mat, tote bags, stickers, and more to share and enhance customer experience. Here at investingation.blogspot.com , we are always looking out for our small business friends. 

Click here for link 

Big Stuff Coming...

Sorry it has been a while since a last post. We've got big things coming up in the future being planned over the next few weeks, months, years...

Get Involved!

Starting an ATM Business

Someone approached me yesterday asking me if I wanted to get into the ATM business. At first my eyes lit up and my initial response was to jump right in. I looked around online started with some simple articles and moving to more advanced. I quickly learned the pros and cons, what people had to say, etc. 

The setting up seems so easy. For example, take a look at this article, which I'll post below from http://smallbusiness.chron.com/start-own-cutting-edge-atm-machine-business-12497.html. 

How to Start Your Own Your Cutting Edge ATM Machine Business

by Luke Arthur, Demand Media

When you need access to cash, you may be willing to pay someone a few dollars so that you do not have to go to the bank and get it. This is the basic reason that automatic teller machines can be profitable in public locations. Starting your own ATM business can help you create a nearly passive source of income over the long-term. Before getting involved with this type of business, make sure that you follow the proper steps along the way.

Determine whether you want to get involved with an ATM franchise or start your own company. Many ATM franchises are available that sell you a name brand and the machines that you need. This provides you with a proven business plan, but it can also be more expensive than simply buying some ATMs by yourself.

Step 2

Buy the equipment that you need for your ATM business. You may want to start out with a single ATM and expand, or you could buy several right from the start. A single ATM will usually cost somewhere between $3,000 and $10,000. You may also need to buy some extra equipment, such as a clip that you can fill with money to refill the machines. In some cases, you may also need a truck that you can use to service the ATMs and move them around.

Step 3

Set up the legal aspects of your ATM business. If you plan on doing business under a business name, you will need to register it with your county clerk. You may also want to set up a business entity such as a limited liability company so that you can avoid any personal liability. This can be done by filing articles of organization with your state and then paying the appropriate filing fee. You will also need to buy a business license from your city government.

Step 4

Find locations that you can place your ATM. You need to look for public areas that get a large amount of foot traffic. For example, you may expect somewhere between 3 and 5 percent of people who pass by your ATM to actually use it. With transaction fees of $2 to $4, you can then calculate approximately how much money you can generate per month and year from a location. You will need to talk to business owners and work out an agreement to place your ATM on the property. You will most likely to pay some type of rent or commission to the business owner.

Step 5

Place the ATMs in the locations that you secure and set them up. They will require access to a phone line or the Internet. You will also need to set up a computer so that you can check the ATMs. Most ATMs allow their owners to get online and check their status. This will allow you to see how much money you need to take with you to fill them.

There is a lot of potential, also a lot of risk. For me, the two biggest concerns are:

1. Security. Transferring cash is scary. We all know how we feel constantly looking over our shoulders whenever we have a wad of cash in our pockets. We start mentally planning what to do in case we get mugged. 

2. Being competitive and finding the right clients and location. 

Anyone in the business who has further thoughts to share? Anyone interesting in getting involved with the ATM business? 

Spend or Save?

When one closes a document without saving the computer offers a reminder: Would you like to save your work?" If only we had this pop up every time we were about to spend money....

The saying goes, "Don't spend all your money in the same place". This cannot be more true because portfolio diversity is indeed necessary in order that all your eggs won't be in the same basket. However, perhaps we should slightly twist the aforementioned saying for an even more basic lesson: "Don't spend all your money in the first place!" Saving is the necessary perquisite for investing. Even the massive corporations of the world have amassed wealth in their hoards. Let us review a few of the reasons why saving is so important:

1. Emergency Fund. You just never know when you will not only need liquid cash on hand. Sudden medical expenses, a job layoff, imminent house repairs, and accidents are just some of the infinite number of occurrences which may demand immediate attention and spending. 

2. Retirement. Some of us think we are too young to think about it and others don't think they have the time to think about it. However, the only way that ones retirement goals and aspirations could be met is if one starts planning and saving in advance. This is important to bear in mind now more than ever with the average life expectancy increasing as well as the benefits of social security decreasing. 

3. Children. We cannot see the future (and those who claim they could have never won the lottery). We must save for future generations - children and grandchildren so that no matter what the economy may bring we could help regarding education, health, and basic needs. 

Note: There are two types of savings: (a) keeping cash on hand (b) investing in low-risk investments. Each has its pros and cons. Each has its place in preparing for some of the above challenges. 

Guidelines and Perspectives

I would like to share with you an excerpt from Eric Tyson's 7th Edition of Investing for Dummies book:

20 Rules for Successful Investing

1. Saving is a prerequisite to investing. Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and building wealth.
2. Know the three best wealth-building investments. People of all economic means make their money grow in ownership assets — stocks, real estate, and small business — where you share in the success and profitability of the asset.
3. Be realistic about expected returns. Over the long term, 9 to 10 percent per year is about right for ownership investments (such as stocks and real estate). If you run a small business, you can earn higher returns and even become a multimillionaire, but years of hard work and insight are required.
4. Think long term. Because ownership investments are riskier (more volatile), you must keep a long-term perspective when investing in them. Don’t invest money in such investments unless you plan to hold them for a minimum of five years, and preferably a decade or longer.
5. Match the time frame to the investment. Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment. For example, for money that you expect to use within the next year, focus on safe investments, such as money market funds. Invest your longer-term money mostly in wealth-building investments.
6. Diversify. Diversification is a powerful investment concept that helps you to reduce the risk of holding more aggressive investments. Diversifying simply means that you should hold a variety of investments that don’t move in tandem in different market environments. For example, if you invest in stocks, invest worldwide, not just in the U.S. market. You can further diversify by investing in real estate.
7. Look at the big picture first. Understand your overall financial situation and how wise investments fit within it. Before you invest, examine your debt obligations, tax situation, ability to fund retirement accounts, and insurance coverage.
8. Ignore the minutiae. Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets. Ultimately, the prices of stocks, bonds, and other financial instruments are determined by supply and demand, which are influenced by thousands of external issues and millions of investors’ expectations and fears.
9. Allocate your assets. How you divvy up or allocate your money among major investments greatly determines your returns. The younger you are and the more money you earmark for the long term, the greater the percentage you should devote to ownership investments.
10. Do your homework before you invest. You work hard for your money, and buying and selling investments costs you money. Investing isn’t a field where acting first and asking questions later works well. Never buy an investment based on an advertisement or a salesperson’s solicitation of you.
11. Keep an eye on taxes. Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts.
12. Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds and exchange-traded funds is both time-efficient and profitable. Real estate investing and running a small business are the most time-intensive investments.
13. Where possible, minimize fees. The more you pay in commissions and management fees on your investments, the greater the drag on your returns. And don’t fall prey to the thinking that “you get what you pay for.”
14. Don’t expect to beat the market. If you have the right skills and interest, your ability to do better than the investing averages is greater with real estate and small business than with stock market investing. The large number of full-time, experienced stock market professionals makes it next to impossible for you to choose individual stocks that will consistently beat a relevant market average over an extended time period.
15. Don’t bail when things look bleak. The hardest time, psychologically, to hold on to your investments is when they’re down. Even the best investments go through depressed periods, which is the worst possible time to sell. Don’t sell when there’s a sale going on; if anything, consider buying more.
16. Ignore soothsayers and prognosticators. Predicting the future is nearly impossible. Select and hold good investments for the long term. Don’t try to time when to be in or out of a particular investment.
17. Minimize your trading. The more you trade, the more likely you are to make mistakes. You also get hit with increased transaction costs and higher taxes (for non-retirement account investments).
18. Hire advisors carefully. Before you hire investing help, first educate yourself so you can better evaluate the competence of those you may hire. Beware of conflicts of interest when you consider advisors to hire.
19. You are what you read and listen to. Don’t pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity. Find out how to evaluate the quality of what you read and hear.
20. Your personal life and health are the highest-return, lowest-risk investments. They’re far more important than the size of your financial portfolio.

(Source: http://www.dummies.com/how-to/content/investing-for-dummies-cheat-sheet.html)

Notice the bookends of this list - they are the two most important ones. Number one is that saving money is itself a sort of investment. Think about: Making tons of  money but throwing it around and wasting it just means that you are your own worst enemy. If with your added wealth you begin to just view more things as "affordable" and "disposable", then that extra money may make you FEEL richer, but you will not be any richer. You will just be playing "catch up" with your new stupidities. Holding yourself back from say a $100 unnecessary thing is equivalent to being paid $100 not to buy it.  Saving is a must. Not only with saving will you not be losing, but you will also be gaining because you will have more funds available for investing. 

However perhaps even more important than saving money is to remember the last of the listed points which is that Money is not an end, it is a means. When you die, you will not take it with you! (Don't believe me? Ask the mummies). Our task as people is to utilize our money as a means for a productive end. Whether it be persoanl health, safety and security, education, family, or charity, we must keep those in mind not only as motivators but as guidelines as to when we are going too far with the means and giving up on the end. Sacrificing family for money when the reason you are amassing money is for family, just does not make sense. Destroying your health to work harder just to pay for extra therapists and doctors later, is just not logical. 

Have other points to add? Agree / Disagree? Leave a comment on the blog or G+ page or email: glocalinvestingation@gmail.com