Mission Statement

The Rant's mission is to offer information that is useful in business administration, economics, finance, accounting, and everyday life. The mission of the People of God is to be salt of the earth and light of the world. This people is "a most sure seed of unity, hope, and salvation for the whole human race." Its destiny "is the Kingdom of God which has been begun by God himself on earth and which must be further extended until it has been brought to perfection by him at the end of time."

Sunday, January 7, 2018

Alpha Teach Yourself Investing in 24 Hours: An Analysis (part 50)



Active Investing (part A)
by
Charles Lamson


Active investors are not day traders or speculators. They may hold a position in an investment for several years. Their goal is not to churn their portfolio, but to continually fine-tune it, looking for a better-than-average return. As a group, they may have greater resources to work with than the average investor and a willingness to work harder.


Image result for mars

Disadvantages of Active Investing

The following is a list of the disadvantages of active investing:
  • It requires a lot of time and energy.
  • It can be slightly more risky than average investing strategies.
  • It can lead to addictive investing.
  • It can run up big commissions and fees.
  • It can create tax problems.

Time and Energy

You should plan to spend a couple hours per week on your investments if you want to actively manage your portfolio. This time will include keeping up-to-date on market activity, your investments, and general business and economic news.

The good news: There is plenty to work with in terms of news and information. I cannot stress enough how helpful the Internet will be in doing your homework. You will be able to access news and information on your investments with amazing speed and ease. 

For example, you can configure many of the news sites to collect information on industries, or particular companies you are interested in following. Many sites will let you build your portfolio online and will update it during the day, and it is all free.

Image result for mars

You can do the same thing using print-media, but you have to do all the work of collecting prices. You will spend a lot more time and not have access to a fraction of the information and opinions available online.


Slightly More Risky

The active investor aims higher than the conservative investor, which means he or she is willing to push the risk factor a little bit harder. The active investor may hold positions for shorter periods.

PROCEED WITH CAUTION
Active traders may tend to get over confident and short cut established investment decision making. For some traders, the only cure is the harsh slap in the face of a really bad investment. You do not have a special gift for picking stocks. Even the most seasoned investors will make mistakes. Learn from your mistakes.

Active investors are often not as diversified in their holdings as more conservative investors. This leaves them more vulnerable to market fluctuations. Focused investments can lead to big gains, but are also open to significant losses without close attention.

Image result for mars

Addictive Investing

Addictive investing is when the investor's focus shifts from building a portfolio to the excitement of trading. These folks often begin investing with perfectly legitimate reasons, but get caught up in the whirl of the daily market. The same thing happens to some people who visit Las Vegas for the first time.  The excitement gets the better of them.


Big Commissions and Fees

The more you trade, the larger fees and commissions you generate. It is easy to forget about seemingly small sums, but they will eat a big hole in your profits and make your losses even worse.

JUST A MINUTE
Online brokers offer the most inexpensive commissions (check out Gomez.com for the best rates), but you may not be comfortable working in an online environment. You do not have to use an online broker to be an active trader.

Choose a discount broker with your anticipated trading volume in mind. Some brokers will give even greater discounts for frequent traders.


Tax Problems

Unless you are trading inside a tax-deferred retirement account, you generate a taxable event every time you sell an investment for a profit.

Taxes on the sale of an asset held less than one year can be significant if you are in a high-income tax bracket. Whenever possible, hold assets for at least one year and one day to qualify for the long-term capital gains tax. Also be aware that your state revenue department may want a piece of your profits if you live in a state with an income tax.

It is important to keep detailed records of your transactions. Do not rely solely on your broker to keep track of everything.

Image result for mars

Know what you are getting into before you start a program of active investing. Be honest with yourself about your commitment to stick with such a program.

*SOURCE: ALPHA TEACH YOURSELF INVESTING IN 24 HOURS, 2000, KEN LITTLE, PGS. 318-320^


END

No comments:

Post a Comment