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Why most people never escape the rat race.

Discussion in 'Investing Strategies' started by MichaelWhyte, 26th Oct, 2005.

  1. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Guys,

    An interesting article I just read in the SMH collaborated a lot of my personal investment thinking. That is, most people are more scared than greedy, to the point that they make irrational investment decisions skewed by their fear of failure.

    Here's a link to the article "Nothing to lose but fear itself":

    http://www.smh.com.au/news/opinion/nothing-to-lose-but-fear-itself/2005/10/25/1130237354430.html

    This is why, when asked, I always suggest "newbie" investors read books on mindset and broad strategy before getting into the detail "how-to" books. Before you can be a successful investor you need to conquer your fear. Not eliminate it entirely, just subjugate it to common sense and reason.

    The following paragraphs from the article above really resonated:

    Cheers,

    Michael.
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    Ha Michael

    You beat me to it! I was going to start a thread on this issue too.

    The point about having "nothing to lose" is an interesting one. Maybe that's why immigrants such as Frank Lowy who came to this country with nothing have been so successful?

    They'd been down and the only way to go was up...

    Investment psychology is fascinating stuff!

    What do others think?
     
  3. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I enjoyed the article, but I didn't like how they tended to equate investing with gambling. I too would most likely not bet on those offers. By their definition, I'm too afraid to invest! I've never gambled - not even purchased lottery tickets.

    I would however think nothing of putting very large sums of money into well placed and careful chosen investments that I am comfortable will grow in value over time.

    Hence the reason why I'm watching Navra fall in value lately with a heavy heart - because I don't have the cash at this point to take advantage of the low prices!

    Mark
     
  4. Tropo

    Tropo Well-Known Member

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    "....Professional fund managers may well do a better job of managing our money than we would ourselves precisely because they don't act as if it is their own. They are prepared to take risks with our money that we couldn't stomach taking ourselves..... "

    Michael,
    There are different groups who manage your money, like superannuation funds, managed funds ( invested in variety of investment ) or share funds.
    Some of the share funds outperformed the market on average by approx. 6% ( few outperformed the market about 18%).
    When talking into account fees and dividends, this return is acceptable.

    We are getting different picture if we compare share funds with superannuation funds and manage funds.
    Statistics indicate that manage funds underperformed the market around 5.5% and superannuation funds more than 8% ( before fees are taken into account )
    All those people who put money in this kind of funds, are entitled to expect that " gurus " who run this funds should not only match the market - but outperformed it .......

    So - maybe investors may do a better job by managing own money....or they should consider hedge funds, which usually do not charge fees unless they mach the market performance...
    :cool:
     
  5. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Mark,

    The $20 handed out in class and offered to bet was a no brainer for me. I'm a technical investor and would have bet every single time, its that simple!

    If someone says I'll toss a coin and give you $10 if it comes up heads, and if it comes up tails you give me $5, I think I'd bet until he'd run out of money. (Of course, I'd insist that I toss the coin and that it was one out of my pocket! ;) ) Note the point about "him" running out of money. On a 50/50 random chance with the stakes skewed in your favour, the law of normal distribution ensures you'll win over time provided you just keep betting. The more times you do then the closer to the norm the sample space will return. You might lose if you toss once, but if you toss 100 times then odds are you'll be in front.

    Some people just don't grasp the basic concepts, and that was eye opening to me when I read the article.

    Maybe I am the exception to the rule, what do others think?

    Cheers,
    Michael.

    PS. Yeah, I know how frustrated you must be watching the market from the sidelines right now. I got in with a fair whack of mulla at $1.0723 and the fund is down to about $1.0637 so I'm a fraction behind. But, the market is off about 10% from its highs and I reckon there's a lot of potential "value" to be released from NavTrade in months to come! :D

    PPS. Market is currently up another 1% today on the back of .75% yesterday...
     
  6. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    What I was referring to was this:

    These brain-damaged individuals turned out to be much better investors than the Iowa residents with brains intact. Given $US20 each and the same 20 chances to accept the attractive bet, they accepted more than 80 per cent of the time. They typically made $US3 more than did their counterparts with undamaged brains.

    Gambling on an outcome from a coin toss is NOT investing.... If it was then everyone that went to the casino could be considered an investor.

    Mark
     
  7. Tropo

    Tropo Well-Known Member

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    " Gambling on an outcome from a coin toss is NOT investing.... If it was then everyone that went to the casino could be considered an investor. "

    Mark,
    Spot on !!.

    :cool:
     
  8. Glebe

    Glebe Well-Known Member

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    Well that comes back to how the word 'investing' is defined.

    If I had the opportunity to insert money into an action (whether it be the toss of a coin on many occasions, or property development) that had fairly calculatable risks, and fairly calculatable returns, and the ensuing result is a firm belief of return on investment, then why isn't the 'toss of the coin' scenario investing?

    I'm with Michael, I would have played toss the coin until the cows came home. With the law of averages the dealer would have been screwed.
     
  9. Glebe

    Glebe Well-Known Member

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    So is everyone who gambles on a capital gain on an investment property an investor? Or is there no such thing as gambling, or investing - only speculation. Hmm!
     
  10. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Glebe,

    That was my thinking too...

    To my understanding "risk" and "gamble" are synonomous. i.e. I'll take a risk = I'll take a gamble, or I'll risk it all = I'll gamble it all.

    And I'm yet to find an investment without some degree of "risk" associated with it. I guess the point of difference Mark is trying to get at is that most "investments" have their risks clearly understood and mitigated. However, putting it all on red at the roulette wheel has a bit of a higher risk quotient.

    In effect it all comes down to acceptable risk or mitigated risk. Nonetheless, investing IS gambling, its just you know the odds and do everything you can to skew them in your favour. There are very few gaurantees in life...

    Cheers,
    Michael.
     
  11. Tropo

    Tropo Well-Known Member

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    Glebe and Michael ,

    Trading and investing of any kind includes risk that needs to be managed.
    A lond term strategy should have very tight risk management.

    So - investing or trading without risk management is better known as GAMBLING.
    Survive only those who control their LOSSES !!!.

    :cool:
     
  12. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Tropo,

    I can work with that definition... That's the sort of connotation I think most people put to "gambling" anyway. i.e. Unmitigated risk.

    Cheers,
    Michael.
     
  13. kennethkohsg

    kennethkohsg Well-Known Member

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    Dear Tropo,

    1. Very well said.

    2. You have more or less echoed my basic views on this subject except to add further by saying that it is actually personality-based and therefore "subjective" in nature.

    3. Personally, I think that it is quite futile to try to define how adequate a recommended safety buffer for property investment should be, either in $$ sense or/and % terms in terms of property portfoilo value per se or both, (though some members may indeed find it, a useful guideline for themselves,) as I believe that ultimately it can only be best (subjectively and relatively) defined by the affected individual concerned, based on his own personality, level of self esteem and perception of what is to come and the risks involved per se.

    4. To each, our own beliefs and opinions, please.

    5. For your kind update, please.

    6. Thank you.

    regards,
    Kenneth KOH
     
    Last edited by a moderator: 30th Oct, 2005