Introduction to "Trading for a Living" (Alex Elder author 1993) reviewed by "Surfer Chris" Garrah
Overview of the book
This is an important book written on investing in the market. The author is a psychiatrist who makes the comparison of investing as an addiction and I would have to agree in the sense that I have known acquaintances who are gamblers that are attracted to investing because it gives them the same emotional highs and lows of gambling. But by learning more about investing and risking a smaller proportion of your portfolio on one stock you can reduce the gambling element in investing.The Essentials of the Book
The author introduces concepts to reduce the risk of investing. One of the key concepts is to only a risk a small portion of your investments in one stock. He also points out that commissions must be kept to a minimum. From a |Canadian perspective my solution is to ask your bank to match the Royal Bank commission of ten dollars per trade. This breakthrough in commissions I believed happened in the spring of 2014. versus commissions of thirty dollars per trade previously..The book is comprehensive and introduces charting as well as fundamental analysis. Where other investment books may look at companies financial well being and growth this book covers in detail the importance of finding more opportune times for buying a stock.
There are many indicators in the book to indicate if bears or bulls are controlling the market. A starting indicator to look at is "New Highs minus new lows" Check this out and if the number of companies reaching new highs (after subtracting out the companies reaching new lows) is rising (day after day )then this is supporting the view of the market as a bull market.
Investing For the Long Term
If you are intrigued by Warren Buffett investing for the long term learn about his discovery of companies with "unique competitive advantages". These unique competitive advantages are reflected in higher than average net profit margins. Read about Warren Buffett's method of selecting stocks by reading author Mary Buffett and David Clark's book listed in References at the end of this article.Summary
The key point is the suggestion by the author that you should only invest a small amount of your portfolio in one stock. This is because of the enormous difficulty of recovering your money when you suffer a loss.With the reduced commissions in Canada the numbers work much better for the small Canadian investor.
One key indicator that reflects a stock prices growth is the price per earning growth or PEG. As a starting point new investors should check out what this is. Be cautious and if you enjoy investing learn as much as you can by reading and learning. Happy investing. In Canada the Royal Bank may have been the trendsetter in reducing their trading commissions.RBC Direct Investing - Canadian Bank with low direct trading commissions
References
Trading for a Living (1993) Author Alex ElderWarren Buffett and the Interpretation of Financial Statements - The Search for The Company with a Durable Competitive Advantage (2008) Authors Mary Buffett & David Clark
