The Psychology of Investing

Carol RoachStarred Page By Carol Roach, 3rd Jul 2015 | Follow this author | RSS Feed | Short URL http://nut.bz/2r9hit6b/
Posted in Wikinut>Business>Investment

Investing on the stock exchange is more complicated than you may think, but it can be done even in this economy.

Investing

Written in 2011

Psychology is the study of human nature and because of it, it deals with every topic under the sun. This series of articles will be dealing with two types of investing, a topic that is very depressing for many people due to the state of the economy.

The market has not fully recovered and many people are afraid to invest, while others including Montrealers, have invested and lost quite a bit of money. In general, people in Canada and the USA are still afraid to reinvest in the stock market and loose their shirts. In an economy when people are afraid to lose their homes or their jobs,

investing often is the last thing on the minds of small time investors who are looking at their immediate needs and have very little trust in the future and a recovering economy. Still it is possible to invest and make money through different kinds of investments.

Montreal Case Study - Diana


Montrealer, Diana is a friend of mine She is just an ordinary woman trying to invest for her retirement. She was very stressed when she found she lost half of her investment in the market. She was about to take out what she had left at a lost, no doubt, but her investment broker convinced her to switch her investments over to annuities and blue chip stocks and bonds.

What do the experts say about the market?

Michael Mauboussin,
chief investment strategist for Legg Mason Capital Management says that β€œ Humans are hard-wired to make bad investment decisions. He states, . β€œIt's in our nature to follow along with a bearish or bullish trend, even though history has shown that the best investors sell when everyone's buying and buy when everyone's selling.”

He goes on to say that the media has a lot to do with influencing investor decisions, often by stock pundits (experts in the field). However, he favors thinking outside of the box, while being cautious and going for the safer investments such as Diana was instructed to do.

Will this help Montrealers and Americans alike to trust the stock market again? Only time will tell, but right now there are some investments people who still have some money can try; namely real estate and the FOREX.

Condo Development

This series deals with stress of figuring out whether to invest in this economy and some tips on how to invest in real estate or FOREX trading.

How to invest in real estate

With the global recession and the home mortgage industry gone bust in the USA, property investors are asking themselves if it is a good thing to be investing in more property right now. New investors and seasoned investors alike are asking this question. After all, when you make an investment, you want a return on that investment.

Do not have tunnel vision

It is a known fact that property values go up and down, and that means even in this poor economy property values will rise again.

However, you want to know if you can buy property that will turn a profit immediately or whether you need to hold onto your money and wait for another few years before you reconsider investing in property. Well, the good news is, you don't have to wait, you can buy now providing you know what you are getting into before you start.


The trend in Montreal right now is to convert to condos

Many investors take advantage of the bankruptcies in real estate and buy up property that has been repossessed by the bank and sold at low prices. They then renovate the property and sell as condos to make a major profit rather quickly. For as many landlords who are forced into bankruptcy in Montreal, there are people making lots of money and want these condos. The business is doing very well.

Real estate investment

Some people feel guilty about profiting from the demise of others. They feel it is not ethical to buy up property from bankruptcies in Montreal only to convert into condos. Most of these properties are low rentals, once converted into condos they sell for three times what they were before. Montreal has a shortage of lower rentals as it is and some investors refuse to add to the growing housing shortage.

The following information is equality valuable to Americans as well as Montrealers

When you want to keep the property you purchase


There are a few things you must consider before jumping in. Regardless of the type of property you invest in, you will be a landlord and that is a job in itself. Consider the fact that you will now have a second job on your hands. Don't think that just because you might be considering residential property over commercial property or visa versa that you will have an easier time and all you have to do is sit back and collect rents.

Research before you commit on purchasing a property

There is a lot of responsibility that comes with being a landlord. But even before we go down that road, you are going to have to do a lot of research to find a residential or commercial property that will bring in a yield on your investment.

Know what you are looking for

You have to have an idea of what you want from the get-go, and the first distinction you need to make, after you decide if you want residential or commercial property, is whether you are looking for a long-term or short-term investment. There are advantages and disadvantages for either.

Long-term real estate investments

With a long-term investment it is inevitable that somewhere down the line, you will be responsible for making repairs and of course that is an expense; you will also have to maintain the property and do any necessary improvements. On the other hand, keeping up your property means that you are adding to the value of the property in the long run.

The stock exchange and the forex

Money is a financial stressor. Many Montrealers, Canadians and Americans are having such a hard time just making ends meet; that they do not have the means to invest. Others, on the other hand, have some money to invest, but they are afraid to do so in this terrible economy.

We have already covered real estate, but what about the stock market, or more precisely the currency market? Is it possible to make money in the currency market and have a stable future, that is so important to our mental health?

The next part of this series will deal with the stock market, and the FOREX, everyone of course will decide for themselves if this kind of investment is right for them.

The stock exchange

We all know that the stock market is volatile, but does that mean no one should trade on the stock exchange? If that happened we would have more than a recession on our hands, we would have a full-scale depression.

Remember the great crash of 1929?

Well, that crash could occur again if investors remain skittish. According to financial wizards it is not the time to stop buying and selling securities on the exchange, trading must continue to stimulate the exchange and get it back on a healthy upward swing. However, what needs to be done is the practice of investing wisely.

The standard way of trading is not secure in a bear market (a market that is down) Some economists say that we are starting to see the beginning of a bull market (upward market) though there is still much debate on whether that is so or not.

There are businesses and private investors alike who must still be careful about how they will buy and sell. Neither large corporations, nor small time investors, want to go broke on the stock market.

How to invest wisely

Montrealers as well as Americans are stressed out with the economy and small time and big time investors alike are wondering just when to invest, what to invest in, and how to invest wisely.

How to invest wisely


There are ways to improve your chances of protecting your investments. First of all diversify, do not put all your eggs in one basket so to speak. If you lose on one security it does not mean that you will lose on all of them.

Hedge Funds

Another thing that is quite popular in this current climate is the practice of creating hedge funds. What hedge funds are, are funds which are limited to a group of investors usually in the million dollar range or more, who can afford to diversify into a large number of risk taking adventures; speculating a capital gain. Since there are so many securities in the portfolio it is expected that the capital gains will outweigh the losses. These funds will include, securities, commodities, derivatives (bonds) and currency trading.

Currency trading

Currency trading is done on the FOREX, which is the foreign exchange market. Currency trading promotes international trading and allows investors to trade in different world currencies. With this type of exchange, one country can trade in the currency of another.

A Montreal or American business can operate in American green backs, but buy or sell in the Euro dollar with their European customers. The Foreign exchange market is currently the largest asset market and was established in the 1990's. There are many advantages for currency trading. It is very liquid and trading volumes are high. It is a trading system that is not limited to one country or location.

Leveraging

Montrealers as well as Americans are stressed out with the economy and small time and big time investors alike are wondering just when to invest, what to invest in, and how to invest wisely.

Leveraging

The FOREX allows the use of leverage. Leverage simply means that companies can use debt borrowing, which relies on their future purchasing power to deliver assets to the owner at a future date in time. This leverage can produce capital gains and losses. Leveraging can be accomplished through a loan to buy stocks or it can employ other forms of debt acquisition.

U.S. banks have been under criticism for leveraging in order to increase stock prices. Even in hard economic times, banks and other high paying organizations will pay out large bonuses to the top executives obtained from stock profits. US taxpayers have not looked on this practice favorably.

Delevering

Delevering is the opposite, whereby borrowing stocks and commodities are reduced.

The FOREX is open 24 hours a day except for weekends. This gives Montreal investors and investors worldwide the opportunity to trade with one another.

Day trading

On the other hand, day trading means the exchange closes at the end of the day and that is not amenable to traders trading in different world time zones.

Foreign Exchange Market - FOREX


The Foreign exchange market is portioned into several levels.

Banks

The banks that have inter-banking capabilities occupy the highest level. Within this structure, is the bid and ask price of stocks, the more volume moved, the smaller the difference between the bid and ask price. The inter-bank top-level echelon is responsible for over 50 percent of all currency trading. After this level of currency trading comes the smaller investment banks and then large international corporations who are hedging (high risk security buying). They pay their international employees in the currency of the country in which they live.

Investment management firms

Investment management firms will handle big accounts for their investors and they too deal with the foreign exchange market.

Making money work for you

Stressing out over investing is very common, Montrealers as well as Americans are turning towards currency trading as a safer marketing investment in this depressed economy.

Montrealers and Americans alike must be careful when choosing a retail foreign exchange broker

Retail foreign exchange brokers only account for a small percentage of FOREX trading and sometimes they are implicated in foreign exchange scams. These brokers are regulated through the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). However, many of the small and spurious brokers have been shut down. These are the brokers you hear of who have swindled investors out of their life savings.

Foreign Exchange Companies


Foreign exchange companies are not banks. They trade in foreign exchanges on behalf of companies and private investors. They do not speculate in currency exchange (trade in the currency they speculate is the strongest - more purchasing power). They usually can obtain a better currency exchange rates than if the customer went through his or her own bank.

There are also the money transfer services such as Western Union, which deals with foreign currencies.

The main FOREX exchange is in London. There are also the Tokyo, Singapore, New York, and Hong Kong, exchanges, which are important FOREX, exchanges as well. Of course, there is currency fluctuating, which occurs due to such factors as inflation, gross National Product, and so on.

When a currency is devalued the stocks trading in that country will be devalued on the open market. One advantage for investors who deal on the FOREX will be that they are able to transfer over to the other currency they are trading with, if that currency is valued higher. That way, they protect the value of their stocks. The US dollar combined with the Euro dollar is a great combination to protect investments trading on the Foreign Currency Exchange.

Remember the trick is not to stop investing, but to invest cautiously in this sluggish market. Stock markets go up and down historically and since this particular stock market has been down for so long the tables will turn and it shall go up again. Montreal investors want to be in the market when it happens. There is money to be made; you just need to know how to do it.


All photos taken from the public domain

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Comments

author avatar Kingwell
3rd Jul 2015 (#)

This is something that I've never had to worry about as I've never had enough money to invest. Blessings.

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