Follow These Investing Rules and Watch Your Odds Change Immediately

Given it’s a Melbourne Cup holiday here in Victoria, today’s Markets and Money will be briefer than usual.

Yesterday I told you I’d consult my sources and get back to you with a tip for the big race. The problem is, my sources are like Fame Game, the short priced favourite. Everyone likes Fame Game.

But the odds are too low. It’s paying $3.20 on TAB’s fixed odds, which for a race like the Melbourne Cup, with 24 starters, is not a great return considering the risk involved.

There is a bit more value on offer with A Trip to Paris, with fixed odds of $9, or Cox Plate runner-up Criterion, at $14.

For an under the radar roughie, British horse Big Orange ($51) could be an each way bet, along with sentimental favourite Red Cadeaux ($19), three time runner up of Australia’s biggest race.

But who am I kidding? I have no idea. A handful of horses could win it. With so many running, you need luck to win the Melbourne Cup. And luck is something the odds cannot factor in.

So in the true spirit of the words, good luck if you’re punting today, you’ll need it.

The other thing I noticed with the Melbourne Cup field is that there are no Aussie bred horses running. The closest we have to local runners are New Zealand bred.

This is a classic representation of modern day Australia. We’re sprinters, not stayers. We want an interest rate cut over long term reform…short term gain, long term pain.

Sport mirrors life alright!

While I like a good horse race, I hardly ever bet. I backed the winner in the Cox Plate this year, but before that my last bet was in the 2014 Cup. I managed to back the winner then too, so I’m reluctant to break my winning streak, which I surely will with a stab in the dark tomorrow.

Many people view the stock market as a punt too. But if you follow some basic rules, you can put the odds in your favour in a way that you just cannot do at the racetrack or the casino.

Today’s Markets and Money will show you how. The rules below form the core philosophy of my Crisis & Opportunity investment advisory. The recommendations I’ve made over the past year all conform to these rules. And on average, these recommendations have outperformed the market in a big way.

It’s only a year of evidence. It could just be beginners luck. But the stock picks are the result of following a disciplined process. I think luck plays a minor role.

Anyway, read on and see what you think. None of the rules are particularly difficult to follow. They’re just common sense really. But for many people, common sense and investing are mutually exclusive.

That’s why I made the rules as they are. They really help you get the emotion out of your investing decisions. Because it’s the decisions made under emotional stress that turn out to be the decisions you wish you could reverse.

If you start investing with an eye to these rules, I’m confident you’re investing results will improve pretty quickly.

Crisis & Opportunity — top 10 rules for investing

  1. Invest with the trend. You’ll improve your odds of success by buying into upward momentum.
  2. Buy cheap companies when the stock price is in an emerging uptrend. Buying value stocks is good, but only do so when the stock price is in an upward trend. If you pick the right stock, this can result in big long term gains.
  3. Never swim against the tide. Never buy into a downtrend. Cheap stocks can get much cheaper. Wait for the downward trend to finish and for an uptrend to emerge before buying.
  4. The value equation: Low PE + high ROE. When assessing valuation fundamentals this is one of the traits to look for. That is, stocks trading on a low price-to-earnings ratio and a high return on equity. This combination usually suggests there is good value in a stock.
  5. Cheap stocks can get much cheaper, expensive stocks can get much more expensive. In other words, trends can persist much longer than you think possible.
  6. Listen to what the market is ‘saying’. Stock charts tell you a lot about how investors are thinking. Don’t ignore the story in the charts.
  7. Fundamental and charting analysis should confirm each other’s view. The charts should confirm a stock’s fundamental story. When these two viewpoints don’t match, be wary.
  8. The market is smarter than you. This is why it’s important to cross check the fundamental story with the charts. If the charts say you’re wrong, take notice.
  9. Be financially, not emotionally, invested. Be prepared to accept you’re wrong. Don’t fight the market and hang onto your bias…the market will always win. Don’t invest your emotions in a position. It will make it that much harder to get out when you need to.
  10. Have an exit strategy. Know at what point you’re willing to cut your losses if you’re wrong. Don’t hang around thinking a stock might bounce back.

If you want to find out more about how this process works, click here.


Greg Canavan
For Markets and Money

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

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