8. Assess your physical condition when trading!
Most athletes approach their competitive challenges with some form of cognitive assessment of their physical ability to compete. After all, their ultimate success or failure depends upon it. In the same way, every trader should assess the impact that their physical well-being might have upon their mental abilities during a given trading day. A tired body could result in an impaired ability to trade with the mental reflexes necessary to react and respond correctly to news, information, and events. Thus, approach the trading day like an athlete would approach a competition and assess your readiness for the day. If for any reason you feel that you’re not at your level best, make adjustments.
9. Trade on your terms!
Would a driver who enjoys the challenge and thrill of negotiating a winding road at high speeds engage in such a challenge when driving conditions are poor, say, when roads are icy? In baseball, would a low-ball homerun hitter break from his upper-cutting swing to chop at high-ball pitches? Would a featherweight boxer arrange to fight a heavyweight and expect to win by KO in the first round? No chance on all counts! You should ask the very same questions when you are trading and investing.
You should pose questions such as: How do I normally fare in this type of investment? How have I fared in this type of trading environment? Should I exercise patience and wait for a better opportunity? Is the current level of market volatility a risk or a boon to my style of trading? Do I normally excel under these conditions? Or am I, perhaps, more apt to get chopped up?
You don’t have to trade, so don’t if you’re not comfortable. Why risk playing under conditions that don’t suit you? So don’t put your pedal to the floor when you are on an icy road. Be selective. Stay away from trades and investments that don’t work for you. You are in control of those black and red, buy and sell tickets. Trade on your terms!
Anthony Cross
Anthony Cross manages Liontrust Intellectual Capital Trust, a fund which invests in smaller companies using precepts which evolved from ‘The Cross Report’. The Cross Report argued that intellectual capital and employee equity participation are of paramount importance in successful companies.
The investment attractions of intellectual capital
Introduction
If asked to list a company’s assets, most people would probably give the accountants list of plant and equipment, property, raw materials, stocks, finished goods and cash. Whilst these assets are important, they are rarely unique and they represent a declining proportion of the value of companies. Research by Deutsche Bank shows that over the last ten years, the value of intangible assets has become a much greater proportion of total enterprise value. Fixed assets now comprise only 16% of the enterprise value of an average company compared with 42% in 1989.
So what are these intangible assets that enable companies to add value to their products and services and thereby retain pricing power? The answer is intellectual capital: it is frequently difficult to replicate, and its successful exploitation lies at the heart of today’s growth companies.
1. Finding good investments should not be easy.
The world is becoming more competitive. More competition means that there are fewer good investments.
2. Look for intellectual capital assets, such as customer relationships and intellectual property.
They are the most important assets in companies. Competitors find it difficult to replicate these intangible assets.
3. Make sure directors and employees own shares.
Intellectual capital assets are created and exploited by employees. Equity ownership helps retain employees and aligns their interests with those of outside shareholders.
4. Target companies with proven organic growth.
Organic growth is the clearest evidence of success. Be wary of those who need to acquire growth.
5. Beware of companies that claim to be an exception to the rule.
Companies rarely miss out on wider negative industry trends.
6. Declining margins during a time of economic stability are a sell signal.
Companies that are difficult to replicate should earn superior returns but they will also attract competition.
7. Sell when directors make material equity sales.
Ignore their stated optimism for the company.
8. Protect the downside.
Think about what could go wrong as well as right and limit the size of your bet accordingly.
9. Spread your bets.
Investing is about protecting wealth as well as adding to it. Companies are valued on a multiple of optimism. When optimism turns to pessimism share prices collapse. Today’s winner could be tomorrow’s loser.
10. Be patient.
A good bet might take a couple of years to attract the attention of the broader market.
Lawrence Cunningham
Professor Cunningham is Director of The Samuel and Ronnie Heyman Center on Corporate Governance, and Professor of Law and Business at Cardozo Law School. He has taught and lectured widely in the US and to investor groups in London. He also serves as a consultant to corporate boards of directors, law and accounting firms, and regulatory and standard-setting bodies.
Books
The Essays of Warren Buffett (editor), John Wiley, 2000
How to Think like Benjamin Graham and Invest like Warren Buffett, McGraw-Hill, 2000
How to Think Like Benjamin Graham and Invest Like Warren Buffett, McGraw Hill Higher Education, 2002
The investing methods of Warren Buffett
1. Don’t be the patsy.
If you cannot invest intelligently, the best way to own common stocks is through an index fund that charges minimal fees. Those doing so will beat the net results (after fees and expenses) enjoyed by the great majority of investment professionals. As they say in poker, ‘If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy’.
2. Operate as a business analyst.
Do not pay attention to market action, macroeconomic action, or even securities action. Concentrate on evaluating businesses.
3. Look for a big moat.
Look for businesses with favorable long term prospects, whose earnings