This is Wheelie’s ‘Get Rich Quick’ scheme*……..
As usual, I am supposed to be hammering out another Blog which I promised you all (HSS Hire) but I have got myself distracted. It is utterly weird how some of these Blog ideas come to me and when I get such inspiration, I feel the need to get on and type ASAP before the idea cools off and I type something substandard. I was having a Shower this morning and it suddenly hit me (the Blog idea, not the Shower Head) and while I was dripping wet I had to rush to my Office (what a grand name for a desk and an old Netbook) and grab some A4 paper and get biro-ing like a demon possessed with Blog Writing fever.
I need my Disciples to spread the Religion…….
WD’s Key Elements
Right, now I am back in the room…….the thought was that I wanted to distil down what I consider to be the really Key Elements of what we need to do to make Money steadily and consistently over time with minimal Risk and minimal Effort.
As Safely as possible and as Easily as possible.
The Key Elements are the ‘Building Blocks’ of how we can be Successful in the Markets. Do these right, and we stack the Odds in our favour.
We all read everywhere about these “Get Rich quick” schemes and how various dubious parts of the Financial Services Industry promise us simple ways to make money and how they have the “Secret Formula”.
So it hit me that I need to compete with these Conmen and have my own attractive Offer for everybody - only problem is, mine needs to be Honest, Justifiable, Realistic and able to actually Work. I guess in a way it’s sort of like having a Mission Statement but it is a little more detailed - it’s certainly Strategic - a High Level view of the Essence of what I think we need to do to make Cash in the Markets in a way that will Work (or should do over time).
So, it’s sort of a List of High Level stuff that if we follow it as close as we can, then it SHOULD make us money over a period of years - we can Never be utterly certain this Approach will work - we may need to amend bits of it in years to come, but the Odds are in our favour.
We need to realise that the Stockmarket is an Adaptive, Evolutionary, System. What works for one period of a few Months or Years may not work forever - we need to adapt as the market changes. This is because Investors ‘wise up’ (learn) over time what works as they see other Investors making money by that method - so the ‘Edge’ or ‘Advantage’ is eroded away over time - it is Arbitraged away.
Chris Dillow in Investors Chronicle has a superb Analogy for this - it is like Animals and a Food Source. When the Grub is abundant, the Animals feast on it (the Profits) and after a while, the Nosh dries up and the Animals move elsewhere or die off (no more Profits to be had). So the Cycle begins again - the Tucker starts to grow again (the Profits of the strategy reappear) and this attracts back the Animals. So strategies have a habit of going in and out of favour - unfortunately the Cycle is not all that predictable with regard to its timing (‘Periodicity’ for peeps who love clever words.)
Is it me, or is the Blog Juice flowing tonight? I am pretty pleased with the words flying through my fingers at the moment !!
Interestingly though, the kind of ‘Value and Momentum’ type approach I tend to use, does have a record of working better than most other Strategies over time - this is proved to some extent by the likes of Warren Buffett, but of course such strategies are hard to undertake and an Art Form to a large extent. Hopefully a few simples Key Elements will help us create some pretty acceptable Artwork (no, you cannot hang a nice PETS trade in the Louvre).
An essential point of the Key Elements is that they must be Simples. Complexity is no good - most of us do not have the time or the patience for it - we need something straightforward and easy.
Most of us lead crazily busy lives - I didn’t use to but suddenly I had this bonkers idea to create a Geek’s Finance Website. People have busy and demanding jobs, families, pets, relatives, social commitments, clubs, sports activities, TV Appearances (who?), illnesses, holidays etc. etc. etc. you get the point. Therefore we just do not have the time to sit in front of Computers all day and read countless piles of Finance Industry Propaganda - life is way too short.
I think money can be made by Traders - Day Trading and Position Trading and Forex Trading etc. - but the Stark Truth is that very few people can actually do this (95% of Spreadbetters lose money) and very few of the people reading this Blog will have the time to commit to such Trading. It is also incredibly hard work and you need the right Psychological make up - barely any people in the World have this. So forget it, it ain’t gonna happen, you are not going to ‘Get Rich Quick‘. Mind you, if you work on the stuff in this Blog, you MIGHT get Rich Slowly……or at least you might be in with a chance of getting Rich.
Believe me, with these “Get Rich faster than a Cheetah” schemes, you will get very, very poor. Remember, if the people selling you this ‘system’ are so good, then why are they telling you about it? Why are they not on a beach somewhere surrounded by characters from a Rap Video? Why are they charging you money if they are so good they make millions from their System? (Note, this is one major reason why WheelieDealer will forever be ‘Free to Air’ - I believe in my own Investing Abilities - I do not need to rip my Readers off. I have a real ‘Bee in my Bonnet‘ about this principle.)
We MIGHT not make money, but we will DESERVE to make money.
WD’s Key Elements
“Wheelie, you are losing it dude. You just typed that same heading.”
I know, I can’t think of a better way of doing it. So let’s Adapt. Let’s Evolve. Let’s be Flexible.
I need a brew - hang on…….
(this is a good time to go for a pee, get a beer, kick the dog, check your Stocks, brush the canary (what?), take out the rubbish, tell the boss to stick his job, etc.)
Right, I’m back, where was I?…….the Key Elements, here they are:
(I have split them down into 4 Overarching Areas: Process, Fundamentals, Technical Analysis, Psychology)
- Think and Hold Long Term
- Think ‘Portfolio’ not individual Stocks
- Scale Positions to Risk
- Have a Yearly Target, Plan and Rules
- Write a Trading Diary
- Get your ‘Tools’ organised
- Scale in, Scale out
- Buy Dips, Sell Rallies
- Lighten up in Bear Markets
- Average Down where appropriate
- Use Funds for specialist Sectors / Geographies
- Control All Costs
- Minimise Tax
- Use Controlled Leverage
- Monitor % Performance Regularly
- Save money into your Investments when you can and as much as you can.
- Buy Quality
- Buy Value
- Buy Defensives
- Buy Dividends and Reinvest them
- Avoid Tiny Stocks
- Avoid obvious downside Risk
- Look for a catalyst.
- Use Simples Technical Analysis
- Follow Seasonal Investing Patterns
- Use Candlestick Charting Patterns.
- Be Calm, Unemotional
- Boring is best, avoid Excitement
- Don’t be Greedy
- Don’t be Fearful
- Be Optimistic
- Be Patient and never in a Hurry
- Cursory interest in Macro - focus on Stocks
- Focus on what matters
- Understand your ‘Edge’
- Understand your Limitations
- Keep an Open Mind, stay Flexible
- Avoid Kahneman ‘Fast thinking’ errors
- Control what you can control
- Be Realistic
- Work with Friends, Gurus, Colleagues, Family and Collaborate
- Avoid Group Think, Herding
- Make your own Decisions
- Establish a Daily Working Method
- Follow Income Portfolio or Funds approach if you lack time
- Do not waste money on Rubbish in your Life
- Successful Investing requires Knowledge and Life Long Learning
- Enjoy Applying these Elements
- Above all, Enjoy your Life, you only have one.
Worth the wait, no?
Way longer than I wanted it to be - darn it. However, I have thought very hard about this - these are the things WE TOTALLY MUST DO IF WE ARE GOING TO MOST LIKELY MAKE MONEY AS EASILY AND AS SAFELY AS POSSIBLE.
There is no skimping. If you cannot manage one, then get a grip of it and make it happen.
Think of them as the ‘Building Blocks’ of a ‘System’ that has a very good chance of working.
If you follow this list, you will be stacking the Odds in your favour.
Here is the same List, but with more details. I wanted a ‘Clean’ List for quick reference and a more detailed one as well. Apologies if you find this way of structuring things a bit repetitive.
Note the different numbers of Key Elements under each of the 4 Headings. Don’t be fooled by this and just think that Technical Analysis is unimportant because the List is so small - on the contrary, I think TA is equally as important as everything else - and it helps get your timing better which could be worth 2% to 3% a year on your Total Returns or possibly more.
However, note the length of the List under ‘Psychology’ - I believe that many Investors pay scant attention to Psychology (along with TA) but I think this List should clearly demonstrate how you cannot ignore this Vital Area. In fact, I would probably go so far as to say that Psychology is THE MOST IMPORTANT AREA.
- Diversify - spread Risk across many Holdings, Sectors, Market Cap size, Investment Themes (Growth, Income, Value, Momentum, etc.), Defensives and Cyclicals, etc. I think 12 Stocks is the Bare Minimum but 20 to 25 is more appropriate as I use Leverage as part of my ‘system’. It is vital to spread Risk - Leverage adds to Risk so even more crucial.
- Think and Hold Long Term - Effectively we will be Diversifying across time. Ben Graham - “in the Short Term the Stockmarket is a Voting Machine. In the Long Term, the Stockmarket is a Weighing Machine.” Think like Owners of a Business, not just a small piece of it. In the short term Stock movements are too unpredictable.
- Think ‘Portfolio’ not individual Stocks - What does a new stock bring to the Party? We cannot know how a stock will do - but we can have a reasonable conviction that a basket will do 7 to 10% per year on Average.
- Scale Positions to Risk - Put Big Money into FTSE100 and FTSE250 stuff, put Small Money into Smaller Caps and AIM etc. Please see my Position Sizing Blogs from October 2014.
- Have a Yearly Target, Plan and Rules - I produced a Blog Template on Trading Rules in late December 2014.
- Write a Trading Diary - record your Buys and Sells and why you did them. Maybe use a Blog (weebly.com is brilliant and FREE) - the exercise and discipline of doing this will improve your Investing hugely.
- Get your ‘Tools’ organised - be clear on what you need and use - Workbench, Websites you like, Trade recording Spreadsheets, tablet, Laptop, Fone (out and about with 4g and for Backup if Broadband fails). See my Blog ‘Information Overload’ from November 2014.
- Scale in, Scale out - build positions over time - reduces Risk. Add to Winners. Sell down in Chunks and Topslice.
- Buy Dips, Sell Rallies - Buy Low, Sell High. Exploit Fear and Greed of other Traders / Investors.
- Lighten up in Bear Markets - hard to predict, but use Technical Analysis to identify Downtrends in Indexes - reduce Exposure and Hedge.
- Average Down where appropriate - See my Blog from January 2015. Averaging Down can be very lucrative - but needs utmost care.
- Use Funds for specialist Sectors / Geographies - more Diversification and use Funds for difficult Sectors like Health, Mining, Technology, etc. Please see my ‘Funds’ page on WheelieDealer2.
- Control All Costs - pay the minimum Trading Fees you can and smallest Annual Charges. Don’t waste money on Trading Systems, Software, Tip Sites, Magazines, Information Technology you don’t need and don‘ use.
- Minimise Tax - use ISAs, SIPPs, Spreadbetting, your Capital Gains Tax (CGT) Allowance etc. Do not pay any Tax you do not have to pay. Remember, the Government will waste it - you will use carefully.
- Hedge - Use Spreadbet FTSE100 Shorts and XUKS to Hedge for Downside Risk when Markets Toppy.
- Use Controlled Leverage - You know I said If you apply these Key Elements then you could make 7 to 10% a year on a Portfolio of stocks? Here's a secret....shhhhhsshh....they will all want to know....Leverage can get us a little more - maybe 3-5% on top or so perhaps - Compounded this is a huge difference. Spreadbets give you Free Trading Money - use wisely. I will be doing a Blog on this whole subject in coming months. Leverage can be extremely dangerous - you must know what you are doing. Spreadbet companies teach you THE WRONG WAY TO DO IT.
- Monitor % Performance Regularly - What is the point of a Plan if we never know how we are doing against the Plan? Weekly Performance % Monitoring is the Minimum - compare with other People’s Performance and the Markets in General.
- Save money into your Investments when you can and as much as you can - if you are in a job and have a bit of Cash you can put to one side, do it. Savings can help massively when Compounded over Time.
- Buy Quality - Low or No Debt, established Trading History, Economic Moat, Pricing Power, Brands, Growing Market for Products, good Dividend Yield, Low to Fair Valuation, Positive Outlook etc.
- Buy Value - Low to Fair p/e, Good Dividend Yield, Low to Fair PEG, etc.
- Buy Defensives - tobacco, Big Pharma, Food, etc. tends to outperform.
- Buy Dividends and Reinvest them - Divvys are a key part of overall Investment Returns compounded over the Years. Are you noting the importance of ‘Compounding’ within the ‘System’?
- Avoid Tiny Stocks - Stocks with small Market Caps, under £50m are Risky and illiquid. If you absolutely must buy them (better be a good reason !!) then use a Small Position Size.
- Avoid obvious downside Risk - many Downside Risks are staring us in the face, why take them on? However, Upside Risk is what we want - look out for a Catalyst. Search out Downside Risks and avoid unless you think they are allowed for in the ‘Margin of Safety’ you believe the stock has at its current Share Price.
- Look for a catalyst - what is likely to make the Stock go up? Is there a New Factory or Product for example? Is it a Turnaround Situation? Why will it attract Other Traders?
- Use Simples Technical Analysis - TA is vital for Timing Entries and Exits - it can make a huge difference to Overall Returns - learn the Simples TA concepts as I use all the time on my Blogs. The OPAY Buy Blogs are the best place to look.
- Follow Seasonal Investing Patterns - “Sell in May and go away, and don’t even think of coming back until St Ledger Day (September).” ‘UK Stockmarket Almanac’ is a huge help in this area - available in Wheelie’s Bookshop on WD2.
- Use Candlestick Charting Patterns - Help spot where pullbacks turn up again and where moves up falter - getting this right can probably add 2% to 3% a Year to Returns - compounded up over time. ‘Candlestick Charting for Dummies’ from Wheelie’s Bookshop on WD2 is all you need (well, apart from a decent place to see Charts).
- Be Calm, Unemotional - Mr Spock and all that. Keep away from Bloomberg and CNBC TV !! Make Trading Decisions outside of Market Hours - do not get sucked into the Excitement and Silliness.
- Boring is best, avoid Excitement - Gamblers seek Excitement - if that is your personality, you may not be best suited to Investment. However, if you are a Gambler and you recognise this Trait, then design ways to eradicate this flaw by using Process. For instance, you could have a Long Term Boring Portfolio for your Big Money and a tiny little Gambling Account where you muck about for fun. Keep the 2 separate - both physically and mentally - compartmentalise them. Boring Stocks return more money with Less Risk.
- Don’t be Greedy - it is impossible to Sell at the Top and Buy at the Bottom. No one can do it. Realise this. Leave some on the Table for other people. If you feel Greedy or smell Greediness in others, get Selling.
- Don’t be Fearful - Avoid CNBC and Bloomberg !! If you feel or smell Fear, it is time to Buy.
- Be Optimistic - The Stockmarket is not a place for Pessimists. If you are of a Pessimistic nature, it might not be for you. Pessimists might get a Great Shorting Opportunity once every 5 to 7 years - no wonder they are so miserable !!
- Be Patient and never in a Hurry - use your ‘Slow Brain’ - never make snap decisions - especially vital during Market Hours when you can do lots of damage to your wealth. If you need to rush to get a Trade done, then you are probably making a huge Error. Stop. Calm Down. Take Time Out. Think.
- Cursory interest in Macro - focus on Stocks - Macro Economic stuff is utterly unpredictable - you are fooling yourself if you think that is not the case. Ignore it and keep your Emotions under control. Use the Panic and Greed of others to take advantage and Buy on Dips and Sell into Rallies.
- Focus on what matters - Cut out the ‘Noise’ - do what counts. Avoid falling into a Comfort Zone - always question what you are doing. Avoid ‘Learned Helplessness’. Please see my Blog from November 2014 on ‘Information Overload’.
- Understand your ‘Edge’ - figure out why you Deserve to make money more than other Stockmarket Players. What makes you different? Where is your Advantage? Hopefully the fact that you are reading this is a start. Please see my Blog on ‘What’s your Edge?’ from November 2014.
- Understand your Limitations - What are you bad at? Can you get better at it? Is there a Workaround? Mine is Stop losses - I am useless at them, but I try to ‘Workaround’ it.
- Keep an Open Mind, stay Flexible - always look for Opportunity - don’t just dismiss things - look properly at everything. Listen to people and Question them.
- Avoid Kahneman ‘Fast thinking’ errors - what a Genius concept. It is so true !! Don’t just make quick assumptions - they will almost always be wrong. Think Slow, Think Carefully, Don’t rush Thought Processes.
- Control what you can control - focus on what you have the Power to affect - for example, you can do nothing about how a Stock is going to move Intraday - so stop worrying about it. Focus on Entries, Exits, Position Sizes, Stock Selection, Topslices, etc. Stop worrying about things that are out of your control - clear your mind.
- Be Realistic - You are not going to make 100% Return each year. Deal with it. You will make 10% a Year if you are Lucky. That is it. But compounded 10%s soon add up to Proper Big Money. Please see my Blog from October 2014 ish, on ‘The Rule of 72’.
- Work with Friends, Gurus, Colleagues, Family and Collaborate - Help people, be polite, work for The Team, use the Collective Mind.
- Avoid Group Think, Herding - despite the above Key Element, think for yourself and do not Run with the Herd.
- Make your own Decisions - only Your Decisions make you Money. Only Your Opinion counts. See my Blog ‘Beware of Opinion - it can bite you in the Bum’ from December 2014.
- Establish a Daily Working Method - or Habit, become Robotic in your approach to everything. Cut out inefficiency and work in a way to keep your Emotional State nice and calm. Be systematic.
- Follow Income Portfolio or Funds approach if you lack time - be realistic - if you are busy with Work and Family etc. commitments, then do your Investing in a Low Risk, Low Activity manner. See my Income Portfolio on WD1 and my ‘Funds’ page on WD2.
- Do not waste money on Rubbish in your Life - do you really need that latest piece of Electronic Pointlessness courtesy of Mr Apple? Stop drinking those expensive Belgian Beers, Get out of Ted Baker and into Primark (ok, that is rather drastic).
- Successful Investing requires Knowledge and Life Long Learning - read, read, read - Wheelie’s Bookshop is crammed with good ideas - get your wallet out and get Educated !!
- Enjoy Applying these Elements - Get into it. Get a Passion for it. Focus on it. Look at it as the most amazing Challenge in your Life (let’s face it, your Job is probably not really what you want to be doing !!) Enjoy it and you will make Money as a lovely consequence.
- Above all, Enjoy your Life, you only have one - if you are not enjoying doing something in your Life, then stop doing it. OK, that sounds easy, but in reality sometimes it is hard to change. But a huge amount of the difficulty is down to our own Psychology - ‘Learned Helplessness’. If you cannot stop doing something that you dislike, then as a minimum plan how you will Escape and set a Deadline - 2 years maybe - make it happen !! Life is too short.
Turned out to be a chunky Blog and a chunky List - shame it cannot be smaller but these are the things we need to get right to make money. However, I intend to do a Blog soon that will have some prioritisation - I am thinking the Top 10 most important Key Elements, then the Next 10 and then the Rest. This should help you focus your efforts on what you can improve first and where it will have the most impact. I thought it best to give you the Full List first so you get a good understanding of where this is going.
Because I am so pleased with this List and the Ideas it represents (what, haven’t I told you?), it is going to become the ‘Centrepiece’ of my Website and I am going to direct my Future Blogs to address these Key Elements - some have been done already, but it will help give a Logical Structure to the Website and give me Direction for what Blogs I need to produce. I am a bit shocked that I have not thought of this earlier !!
The List is going to sit on WheelieDealer2 on the page that currently is called ‘Useful Links’. I will rename it to something like ‘Manifesto / Links’ or whatever. It will go right at the Top with the breakdown of the Prioritisation underneath - once I have sorted that out. I will probably link to this Blog for the details - I have not decided on that yet.
I might have missed a few things and I expect to add some new Key Elements over time - I am sure my Approach will evolve as time passes. I will flag up any changes on the Homepage of WD1 as usual and no doubt Tweet it out (you know I never need much encouragement to whizz out a Tweet !!)
I am gonna go all Karl Marxy now and say that this is Wheelie’s ‘Manifesto for Making Money’ - ‘M3’ - hopefully I'll be able to buy one (in joke for German Car Aficionados). Russell Brand has a Manifesto, so why can’t WheelieD?
“Freedom for Walford !!” (I think that should say “Freedom for Private Investors”.)
I hope this provides the improvement to your Investing that I am pretty sure just writing this has given to me - a very useful exercise and immensely valuable.
You better get applying the Manifesto !!
Up the Revolution, wd
* well, actually, it’s not. There is no such thing. It is Snake Oil. Fiction. Dreamland. Exploitation. Con. A Fool and his money are often parted……