JSE/Liberty Staff Investment Challenge

June 2011

Setting your Investment Strategy

2

• Consider your goals and time horizon

• Watch out for inflation and costs

• Be honest about your risk tolerance:

• Investing involves risk

• No pain, no gain

• Know what you know

• What not to do:

• Don't follow fads

• Don't be satisfied

• Don't lose money

Investing or Trading to Success?

The primary difference between trading and investing is your time horizon.

•What trading attempts to predict is the near term behaviour of other traders

•Short-term traders attempt to buy low and sell high, not focusing as much on company fundamentals as long-term investors tend to do

•Investors look to find and hold successful businesses and earn returns from earnings distributions

3

Understand how your emotions affect your investing

4

Some common psychological traps to avoid:

• Prospect theory (risk versus reward)

• Loss Aversion (fear losing greater than appreciate gaining)

• Status quo bias (tend not to change accepted behaviour)

• Gambler's fallacy (observations are based on prior trials)

• Anchoring (rely too heavily on one piece of information)

• Confirmation Bias (find information supporting our view)

Investing in your Future

5

But it depends on the Sector

6

Stocks behave differently

7

Each month there is likely to be a different winner

8

So if you want to win (be a short term trader):

• Don’t diversify your positions

• Stick to one type of bet

• Trade regularly on perceived emotions and ignore fundamentals

• Keep concentrated positions

• Think about your entry and exit points, ignore the long term

• Listen out for the latest stock tip or fad

• Worry about yesterday’s stock movements

9

Exactly what you would not do when saving for a long term goal

Exactly what you would not do when saving for a long term goal