Investing for dummies

Why not diversify further with a global ETF?

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Thanks for all the tips! I ended up chucking £500 in a Vanguard LifeStrategy 80 fund with a further monthly £100 scheduled for the next few months at least

That’ll also allow me to build my short term savings + continue to build my emergency fund from 4 months’ expenses to 12 months’ in the next few years

It’s quite difficult to resist selling my investments, cashing the £8 I made as a return and then reinvest!

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You can do. I just don’t follow world news that much so I like investing in what I know. But you’re right diversifying by geography should also make up part of a strategy. Diversify by market cap, sector, geo etc.

Nice.

“Cashing in” relies on timing the market to get back in which is borderline impossible. Say you buy a stock at £10, sell at £20. No point reinvesting the same stock immediately because you’d buy it at £20, so you wait hoping it’ll go down - but it goes up - now you’ve lost out on that gain cause you sold at £20. Causes you to become frustrated and buy sell buy sell buy sell chasing the magic dragon.

I am by no means a professional investor but as a rule of thumb I don’t add anything to my portfolio that I wouldn’t hold for a minimum of 12months (preferably 24). This makes me think carefully about what I add and means I don’t panic sell when the market goes down.

You can contribute to a cash ISA and a S&S in the same year, so I have a buffer in my cash ISA and everything else goes into the S&S ISA.

I have two funds in it, a global bond fund and a global ESG equity fund in a 70/30 equity/bond split. It means I have to manually rebalance, but if there is another massive equity selloff I can sell some bonds and buy ESG fund shares with it. I’m also building up a small pot of cash within my investment account for the same reason.

It’s worth also mentioning that whilst historical prices aren’t a future prediction it’s worth learning a couple basic chart analysis.

Whilst it can’t give guarantees it’s a much better strategy than a lot of retail traders of “about now will do” based on gut feeling.

Are you buying below the moving average? (Preferably below the long term)

Are you buying when the RSI is oversold and selling when its over bought? Generally below 30 ideal, but it’s easy to spot historic patterns of where it pullsback to and sells off. So if you are buying below or selling above then you are maximizing returns. In the case of IUSA which tracks S&P below 43 is a buy signal, and anything over 65 get ready to take profit on the daily. (Currently 59 on the daily)

As you can see with most stocks even if you bought chasing over a long enough period you still win. But it’s better picking those entries and exits.

Something like a major event like Covid you can’t predict so it’s a case of stop loss or prepare to hold through and have a spare funds ready for major dips.

65 on the weekly, if you saw that at 75 the bubble is probably soon to pop.

As you can see you could have bought anything during the Covid crash and be quids in. Just needed that spare funds to play.

This really shows how nuts it’s been over the last decade.

Sorry to pick you up on this, but it isn’t. Chart analysis has been roundly debunked as unable to predict anything, fairing less than 50% accuracy rate (ie. worse that random guessing). It’s just tea leaf reading.

If you think it’s working for you, I’d take a long hard look and thoroughly question if confirmation bias is at play.

After investing for over a decade here I have to strongly disagree.

It’s incredibly important to learn the basics. Even if you are a LTH and plan on buying and holding for decades.

Just seeing when something is over bought and over sold is incredibly powerful, especially when you combine it with VPVR and L2 to see where support is or selling walls.

Charts do follow patterns, and theres always support and resistance points that are tested and re-tested.

Even if you simply flick on EMA 50 and EMA 200 and just looking am I buying above the average short and long term.

Don’t just fob it off as ‘tea leaf reading’ without actually giving a go.

It’ll dramatically improve the ‘about now should do’ method, where you could get lucky or could have entered chasing and its about to pop.

Heres a two second with AAPL you can visually see when its above the short term green line (50) and where it tested the long term red 200. Ideally you want to be adding near to the red or at least below the 50 to get a good entry/top up.

If you are chucking in cash when its left the average and in space and the RSI is 80+ then you are making yourself a bag holder. Sure given enough time you’ll (probably) get out on even, especially with blue chip like Apple, but on other stocks you’ll be left holding the bag.

As you can see if you bought in Aug at the peak, just by holding for half a year you could have walked away without taking a loss.

With most other stocks you won’t be this lucky.

And obviously charts need to be taking with a pinch of salt, but it does help show sentiment. You still need to follow the news, and see when earnings are announced etc which can shift the momentum.

Humans want to see patterns in everything. The only real pattern in the stock market is that, over time, in aggregate, stocks go up. That’s why we invest.

But for individual stocks, the graphs are meaningless for timing an entry point.

As you note, with something like AAPL which is a solid company that can be reasonably expected to just keep going up over time, you can’t go wrong. Ie. your entry point doesn’t matter, and you don’t need to look at graphs.

On the other hand, if you did want to try and time AAPL trades for short term investments and wanted to maximise your gains, how exactly could you have done this using your chart reading?

Do you stick to you guns and not invest until it’s close to the red line? That means you don’t invest in June, July, August, Sept, and only buy in late Oct. Congrats, you lost out on most of the gains in June20->Jan21.

If you buy when it’s close to the green line, when do you sell? If you bought late July 20, why would you have sold at the peak Sept 20? You would have thought it was going to keep going up.

If you come up with some selling rules based on chart lines, they will fail you more often than not.

Trying to deduce the rules from past behaviour and saying “well it would have been great if I’d done that” is the fallacy of thinking past performance indicates future behaviour.

And the reason the shape of the graph lines in the past is meaningless, is that the graph line cannot predict the effectively random events that happen in the world that affect the price. Trying to follow the global news or information specifically related to the company you’re buying stocks for, and predicting the price outcome, is a game of gambling. You’re not going to get >50% accurate results.

Even if the market behaved rationally, you’ll get the news long after the professionals have already priced the change in.

Thats the point, you look at the chart it has a massive doji Screenshot 2021-01-15 at 11.15.17 suggesting its about to turn sour.

Screenshot 2021-01-15 at 11.09.40

You look volume, you would at news, you see its floating near 80 RSI and you decide to take profit. You see it falling through the 50 and hold off re-entering until its become over sold again. On this particular 4h I’ve moved the lines to illustrate that below 40 RSI then its a BUY signal. You need to wait for more that one signal unless it’s a very strong one. Theres more indicators than this but MACD and RSI are possibly the most helpful.

Whilst past performance does not predict future, it helps confirm where support and resistance is, and if its on a bullish or bearish run etc, and if you are entering above 70 RSI then you know its getting over bought and under 30 its over sold.

On most stocks the “about now will do” approach is just lucky dip. On anything under large cap then you have a good chance of becoming a bag holder or taking the loss to exit.

Along with charts you very much still need to do your DD and keep on top of news. Obviously unplanned news yes you can’t exactly predict Covid was about to hit, but day to day all stocks follow a pattern. At the moment we are in a bubble but who can say when that’ll pop. I’m not saying to anyone become reliant on charts just use it as a tool. Also as things change, the charts change so a prediction will become stale. A lot of people get focused on drawing lines etc and then don’t update which is a big mistake.

I can see we are going to be wasting each others time here so I’ll say :wave: but please don’t just dismiss it or tell people its tea reading.