Success in the Stock Market

NB: with the Kindle version, some of the hyperlinked sites will work best on a larger device such as a Kindle Fire or tablet. Investing in the US and UK stock markets is the main focus. John Fitch, Chief Risk Officer, ICE Clear Europe, of Intercontinental Exchange Inc, writes: 'A private investor, typically operating alone, will inevitably face unfamiliar challenges in devising, implementing and refining their investment strategy. In the financial market jungle, a seasoned guide can help to eliminate naïve errors and map alternative routes to a desired investment goal. "Success in the Stock Market" is such a guide, comprehensive in its content, yet transparent and accessible in style, the book provides a route map from the fundamental underpinnings of stock markets, building logically through funds, futures and share selection to disciplined portfolio management. Even a sophisticated operator will benefit from Dermod Sweeney's extensive experience as a successful private investor.' Stock markets around the world are involved with staggering amounts of money - around US$70tn - and so they attract the attentions of a great many clever and ambitious people. Combine this with the vagaries of geopolitics and the often rapidly changing fortunes of companies - resulting in severe volatility - and the stock market becomes a frightening place for many people. Share price movements of 30% or more in one day are not unusual. However, a good understanding of how markets behave and how to manage your investment risk should enable you to invest successfully. Stock markets have lost more than half their value twice in the last 20 years - in 2001 and in 2008 - so it is not surprising that the number of retail investors participating in the markets has declined substantially. Could the markets lose half their value again? It's unlikely but certainly not impossible. Important lessons are drawn from these crashes. The Internet has now empowered retail investors like never before. They can buy and sell shares cheaply online, supported by virtually unlimited and easily accessible information on companies and the environments in which they operate. Numerous informative websites are cited - providing investor tools, advice, and information flows which are invaluable if you know how to filter and interpret them. Fortunes of companies can change very rapidly and the 'long term hold' works less well than it used to. However, you should still think long term but be prepared to take profits and cut losses as you monitor your investments. Managing an individual share investment well is hard work and investing in a combinations of funds and shares will suit many retail investors. The fund management industry is aggressively promoting 'tracker funds' that simply reflect the constituents of a stock market index. The story is that active fund management is expensive and underperforms. Tracker funds are a great business model for the industry - it doesn't have to worry about performance or research. Also they pump money into the bad companies in an index as well as the good, creating a serious distortion of valuations. A strong case is made for active fund management and many outstanding funds are cited. Share valuation is covered using both a Discounted Cash Flow approach and an empirical approach based on Price to Earnings ratio. The major market participants are described together with numerous factors that influence share prices. Don't listen to the 'experts' who tell you that it is 'time in the market' and not 'timing the market' that matters - and that you should stay invested through thick and thin. Timing the markets is crucial for successful investing, not least when market indices are testing all-time highs - which they do much of the time! All the good market professionals buy on market pullbacks. A risk-based approach to developing an investment strategy and managing a portfolio of funds and shares