Wealth and happiness from the power of 10

Wealth and happiness from the power of 10

Marcus Padley
June 19, 2010 - 3:00AM

You don't have to be a genius to work out that if only we could avoid the losses, we would all be winners. The first rule of making it is not losing it. So here are my top 10 tips on not losing money.

1 Inside information. A colleague has professionally traded all his life. It's what he does. He says: ''If I had never been given any inside information … I would be a million pounds better off than I am today.''

2 IPOs. The golden rule of IPOs is that if it's any good, it won't be offered to you. If you get offered it … then you don't want it.

3 Pretending to be Warren Buffett. The concept that Buffett can be emulated has cost investors more than it has ever made them. No one has ever managed to replicate his performance. The idea that you can is the biggest drawcard the equity market has and it is a lie. We all keep buying the dream.

4 Gurus. Go to any rainforest, discover any tribe and you will find them huddling under some concept of god and creed. It is a human need to be able to answer the unanswerable questions and we do it by deifying someone or something. In our search for answers to the stockmarket's unanswerable questions, we credit our commentators with vastly more powers than they could possibly deserve or possess. And dangerously, he who guesses the boldest guesses the longest.

5 Greed. The biggest killer of them all. Approaching the stockmarket with greed is like running onto a battlefield in bright orange. We'll get you.

6 Leverage. The mechanism of greed. Leverage is marketed one way, but it works both ways. You lose much faster as well. That means it only works for some of the time and not all of the time.

It only works when you are right. And with average equity returns after interest, transaction costs, inflation and tax of less than zero, man, you had better be right, and right at the right time. You cannot habitually use leverage to ''invest''. Only trade and trade at the right time, not all the time. That's a big ask for someone with a day job.

7 Confidence. What's the core skill of the finance industry?

I'll tell you: it's marketing. And oh, do we have some material to work with. The finance industry is never short of a success story to free your wallet from your pocket. But we cannot all be successful, and of course we aren't. But the concept of success from mere participation in the financial markets is sold and endures because of one convenient fact of life. Crappy cars and small houses don't attract attention. The winners stay, and we raise them up. The losers, conveniently, go away. Thank goodness for that. Imagine how much product we'd sell if we raised them up.

8 Expectations. The root of all happiness. The root of all unhappiness. Expect the unexpectable and expect the inevitable. Best you expect the expectable.

9 Laziness. The nucleus of many of the stockmarket's very large and public losses. There has been more money lost through laziness than through effort - in particular, from putting your future in the hands of financial products you haven't taken the time to understand (Opes Prime, Storm Financial), from ''investing'' without investigating (otherwise known as gambling), from relying on someone else's grand declaration rather than taking responsibility yourself. Let's get this straight. There is no easy route to riches in the stockmarket and there is no free lunch, so participation without effort is not enough.

10 Life. My mum used to say there are three foundations for spiritual and financial happiness and success: your relationship, your job and where you live. Get one of those wrong, and all three will go wrong. Note there's no mention of the stockmarket in there. The stockmarket is not life. It is a side issue. The biggest financial decisions you will make in your life have nothing to do with the stockmarket - such as getting married, getting divorced, having kids, investing in your home, committing to your career or your business. These are the biggest financial decisions you'll ever make. Focus on them. The stockmarket is not a priority.

Marcus Padley is a stockbroker with Patersons Securities and the author of the daily stockmarket newsletter Marcus Today.



This story was found at: http://www.smh.com.au/business/wealth-and-happiness-from-the-power-of-10-20100618-ymsd.html