Media Again
06/22/2005
Despite the best efforts of financial TV and media, millions prefer to watch EastEnders instead of catching up on the latest from CNBC Japan - 'go figure'.
They, alongside offline private investors are being excessively and irrationally risk averse and missing opportunities to maximize their stock returns, according to one study, 'Why stocks may disappoint', from Columbia University. Why are we missing out on readily obtainable gains? Especially when a visit to any bookstore reveals the deluge of magazines promising huge returns?
Private investors are tending to misallocate their resources. They would rather have a high probability of a small loss, as in a lottery, than a small chance of a bigger loss trading equities, even though equities provide better returns. The study labels this 'disappointment aversion'. The effect is fewer people hold stocks than should, given their personal circumstances and potential equity returns. Even those that hold stocks are irrationally risk averse and conservative in their trading. They put a small slice of their wealth into equities even though equities are expected to outperform other asset classes.
A McKinsey report, Beyond Day Trading, confirms that while the number of people trading online increases, the amount of their assets allocated to this new form of investment remains stubbornly low.
It is investors' attitude to risk that leads to poor asset allocation and therefore poor returns on their resources. Age, wealth and living expenses do not predict the proportion of investments held in stocks. Risk-taking investors (who tend to hold more stocks) regret avoiding risk unlike most investors who fear taking risk and losing. It is a lot like life. Think about it.
If you are in the category who despite the ever seductive pied-piper lure of financial TV, do not act upon all those stock ideas, then what should you do to overcome your fears? Simple, learn more. Knowledge illuminates and removes fear and darkness.
Value-Growth
On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook: Photo-Me, BHP Billiton, Premier Foods (might be a bit overpriced though), Arla Foods.
Remember I am targeting about 20-20% with the value growth criteria. Last year it produced 33% return. On my momentum value indicator I have C&C, Rolls Royce, British Polythene, BAe Systems, Charter, Vanco.
Crazy Small Stock
These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: Anglesey Mining, Celtic, Entertainment Rights, Goodwin.
Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.
Spreadbetters
Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:
- Oil: Mixed (tough call, but may be lower this week)
- Copper: Lower
- Gold: mixed
- £/$: Lower
- Dow: Mixed
- FTSE 100: Mixed to possibly lower
- Soyabean Oil: mixed to higher
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