Gambling on the Indices
I've been getting a few e-mails this week from people losing money on trading the indices - namely those trying to guess which way the FTSE or Dow is going, and trying to make a profit from the movements.
I believe this to be incredibly difficult. I tried a few times and failed miserably.
My belief, especially if you are a new investor, is leave it alone. Isn't it just gambling? If I buy a share in a good company, I can buy in the belief that - over time - it will probably make me money. But if I buy and sell the FTSE short-term, how do I really know I've got it right? It's a gamble whatever the charts may say!
Here's an e-mail I received from someone playing the indices:
"I'm still licking my wounds from Friday's Dow meltdown. I was watching the chart movements as it dropped 100 points in a few hours, seeing the perfect oscillating down-trend to a double-bottom.
This looked like a perfect buying opportunity, so I piled in long with £10 per point and a wide stop- loss in case of fluctuation. How wrong I was! I had to pop out to the shops for a while and, on returning, found I had been stopped out completely. It had dropped another 170 points!
As usual, it's always news, news and more news that moves indexes. In this case it was a combination of oil price, Bin Laden's little statement and bad news from GE and City Group - all in a day."
One thing to definitely note here: don't expect to be able to "pop out and do a bit of shopping" if you want to play indexes!
I think, when playing, indexes should be closely viewed with plenty of drive and stamina to work extremely hard at it - and I bet some people have made some shocking losses. And I'm not surprised. How can you really tell when the FTSE is about to turn? I much prefer to stick to my method of holding good shares for the medium term.
Moving onto my portfolio, despite some day-to-day volatility, it's been a great year so far. Biggest winners as mentioned in my picks for 2006 in my last column are: Wolfson, CSR, Dragon Oil and Burren. Centaur, a recent buy, is also going great guns. I've also added Abacus, which looks very interesting after an overhang clearance.
The jury's still out as to what kind of year this is going to be, except for one thing - it is not going to be boring!