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Nimble Short Term Investing

In today's markets, it can pay to invest in a nimble manner.
So, how can we do that?
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The material on this web page is to do with just one possible investing strategy which is NOT guaranteed to be useful or succesful in any way. Some investors might actually utilise some aspects of the details below, and they might be successful. However, that does not imply that all of the information below is useful.

Before making any investments, a professional, qualified and ethical financial adviser should be consulted to advise if the intended investments are appropriate.

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Nimble Short Term Investing

The term “Nimble Short Term Investing” refers to a particular investing style that is applicable to investing in the equity markets (the share market). This investing approach has several underlying assumptions, and adopts specific views and interpretations. Some of it's underlying principles challenge conventional wisdom. And there is a particular mindset that can help an investor to be more successful.

The information on this web page is NOT a recommendation for anyone to adopt this approach, and no guarantees are given as to the successfulness or otherwise. The information here is simply a description of one possible investing approach.

Overview of this approach

Carefully consider the following scenario. 

Let's assume that we have some money which we want to see grow in value. And we are happy to lend the money to one (or more) companies by buying some of the shares in the company.

Over time, we want to see the value of our money grow. If the company struggles for any reason, and the value of our investment is falling, we need to consider whether we will leave our money in the hands of the company — and possibly watch it fall significantly in value, and in fact the company might end up in such a situation that our invested funds could end up almost worthless.

If we could foresee this eventuality, then we might be wiser to take our money back and invest it somewhere else where it might have a greater chance of growing in value. If the company cannot improve the value of our investment, then we might as well invest the funds in a bank account where it is likely to grow (albeit by a small amount), instead of reducing in value.

Bearing this in mind, the Nimble Short Term Investing approach is based on the premise that we are looking for capital improvement, and we won't tolerate any destruction of our capital. This might mean that we invest, and monitor our investments, on perhaps a weekly basis.

Investing objectives

The objectives that help to define this particular investing style and approach include (also see eBook Article ST-7200, "Investing objectives", for more details):

  1. Investment income (such as dividends) is not important and will not be a distraction.
  2. Strive for short to medium term capital improvement - over days, weeks or months, and maybe for years but not necessarily. Hence "Nimble Short Term Investing". 
  3. To maximise the returns by optimising the investment position entry and exit. That is, we will strive to time the market (and this is possible, even though some self-interested experts will try to tell you otherwise).
  4. To protect the capital from downside risk by using an active approach. Hence "Nimble Short Term Investing". 
  5. We are genuinely interested in helping the company to move forward by lending them our money. Hence "Nimble Short Term Investing". 

Time frame and horizon

  • Crystallise profits in short to medium term.
  • Ignore the long-term buy-and-hold approach.
  • Spend a maximum of about 1 hour per day, or up to 6 hours per week, on this and related activities.
  • Be sensible with balancing the amount of time against the end results. That is, we will not unnecessarily spend too much time on related activities that don't contribute to the outcomes. See more information about balancing the time.
  • Be wary of over-analysis, and excessively complicated analysis. This applies to both fundamental analysis (to identify quality stocks and reduce the risks), and to technical analysis (for timing of the entry and exit).

Underlying principles

There are several principles that underpin this approach (also see eBook Article ST-7400, "Underlying principles", for more details):-
  1. The opinions and emotions of market participants are summarised in the price charts. The price charts tell a story, and it pays to understand the stories in the charts. This is what technical analysis is all about.
  2. Bias? - Some finance industry professionals are biased, or have a vested interest, or deliver conflicted advice. So do not automatically believe everything that we hear.
  3. Irrelevant and misleading - Many industry professionals and commentators provide advice and comment that is irrelevant and misleading — so ignore it! For example, they might talk about specific investment opportunities on the assumption that we have adopted the now out-dated buy-and-hold approach.
  4. GEMs - Be cautious about so-called Wall Street words of wisdom and their clichés (eg. “a rising tide lifts all boats”) because some are furphies. See a list of real share market GEMs.
  5. Intrinsic value and value investing —  These notions are not helpful and are ignored. See more details about these misleading terms.
  6. Cyclical investing — This is not helpful and is ignored. See more details about cyclical investing.
  7. Utilise fundamental analysis but only to a small degree. Many investors firmly believe that fundamental analysis is useful to a degree, but many people place too much emphasis on it.
  8. Heavily utilise technical analysis to more accurately time the entry and exit.
  9. Utilise sound risk and money management principles — It is very prudent to pre-determine our risk management and money management strategies. 
  10. Inter-market analysis is useful, so use it to further fine tune and influence our investing activities.

Investing psychology

The topic of investing psychology is a very important aspect, which is not often discussed. It is amazing how relevant it is. Here are some initial thought-starters (also see eBook Article ST-7500, "Emotions and psychology"):
  1. One's own emotional state can strongly influence investment decisions and performance. So understand the forces at play and stay calm. See more information about the emotion and psychology of the markets.
  2. Cognitive and behavioural biases can sub-consciously sway investment decisions. Be aware of potential biases and actively counter their influence.
  3. We cannot be 100% accurate with investment decisions. There will be losing positions, so accept this, cut losses quickly, and move on.
  4. Some closed positions will turn, and in hindsight could have been winners, so accept this, stay calm, put it behind us and move on.

Stock, sector and market analysis

There are several key considerations regarding the analysis of stocks, the analysis of market sectors, and the analysis of the markets (also see eBook Article ST-7600, "Stock, sector and market analysis", for more details):-
  1. The fundamental details of stocks are somewhat useful, but limited for the average retail investor - so be careful not to over-do fundamental analysis. At the end of the day, the true value of a company's shares is the value they are trading for on the market. There is no point arguing with Mister Market (because the market is like an elephant).
  2. Stock valuations - These are theoretical, and assumption based. Basically they are opinions, and different analysts will have different values, so ignore them completely.
  3. Sector analysis - Ignore sector analysis as it is not overly helpful for the amount of time that one could commit to it.
  4. Blue chip stocks? — This term is not helpful, so ignore references to blue chip stocks. See the real truth about blue chips.
  5. IPOs — Do not participate in IPOs. After floating, too many of them are under water for too long. Without a trading history, investing in an IPO is somewhat akin to gambling. See more details about whether IPOs are worth it.
  6. Dividends — These are useful, but are not the primary objective for this strategy, so don't focus or rely on dividends, and be cautious about making stock selection decisions based on dividend returns.
  7. Inter-market analysis - Different markets, and markets in different countries, tend to influence each other from day to day. So it can be helpful to pay attention to them and theirperformance.

Stock selection strategies

  • There are many ways to select stocks, so decide on one or two strategies and don't be distracted by others.
  • One possible stock selection method for this approach is trend following (ie. stocks in a confirmed rising trend). Note that there are others.
  • Utilise back testing and paper trading strategies to increase the confidence of the strategy details.

Strategy details and possibilities

There are many different investing strategies that could be deployed in a nimble short-term manner as described here. The author of this material has one or two strategies to share with the Share Market Toolbox members. See some details in the public presentation slides.

Money management and risk management

Wise money management is an essential ingredient to help with success.
Following are some key considerations (also see eBook Article ST-7900, "Money and risk management"):
  1. Confirm your own exit strategy details before entering a position.
  2. Optimise the position size using a position sizing tool.
  3. Some investment positions will be losers - that's okay. We can't be 100 percent right with our investment decisions, but we can still be profitable.
  4. We can still be profitable provided we keep the losses small, and make sure the winners are large. A win/loss ratio of only 40 percent can be okay (provided the losses are kept small and the profits are relatively high).
  5. Let the profits run. If appropriate, take some money off the table to capture profits.
  6. Don't close a position just because it has met a price target, or because it is making huge profits. In this situation it may be prudent to take some money off the table.
Note the following key points regarding the aspect of risk management, and also refer to more details:-
  1. Consider aspects of funda-technical analysis to minimise the risks ie. look for low debt/equity ratio and consistent returns on equity.
  2. Stock liquidity — Only invest in liquid stocks ie. daily trades > "x", and daily volume or value > 20 times the position size.
    See more about stock liquidity
  3. “Risk” no more than 2 percent of total capital on any one position (the “2 Percent Rule”).
  4. “Commit” no more than 20 percent of total capital to any one position.
  5. Monitor positions at least weekly, and if an exit condition (or stop loss) is met, then action it according to the exit strategy.

Food for thought and more information?

Sensible Investing - ask yourself "does that seem sensible?"
Contrarian Investing Redefined - a revised approach to contrarian investing.
Having trouble getting started? - Are you really Share-Market-Ready?

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The information presented herein represents the opinions of the web page content owner, and
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Last revised: 14 July, 2015.