| Unless you have been living in a cave for the last | | | | casinos. Novice investors are also seduced by the |
| two months you could have failed to notice the | | | | frenzied movement of excited buying and selling of a |
| credit crunch and subsequent financial nightmare that | | | | particular stock. |
| erupted in America and the resulting disaster and | | | | It is the sub-conscious part of our mind which is |
| fallout that spread across the mortgage lending | | | | responsible for the decisions and ultimately the |
| industry over here in the UK. | | | | actions we take. What sub- conscious triggers, have |
| Panic set in and savers for the first time in centuries | | | | our intrepid investors diving for the phone to their |
| staged a bank run ! As we saw queues of worried | | | | brokers? |
| savers standing outside the Northern Rock in the | | | | It's generally fear of missing out. Meaning if the stock |
| Autumnal air, demanding the return of their | | | | is moving fast, and everybody is talking about it our |
| hard-earned savings. | | | | subconscious focuses on the pain of missing out. |
| What happened to the share price of Northern Rock | | | | Being fight or flight creatures -Pain is generally a |
| itself? Well naturally, it tumbled and it did it very fast! | | | | stronger motivator for our subconscious actions than |
| Savers panicked and investors pulled out from a | | | | pleasure. And it's the fear of not getting in on an |
| company which uses money from a now | | | | opportunity that causes us to take action. |
| cash-strapped money market. As you might imagine - | | | | Unfortunately, when we say, the stock is moving |
| the chart looked reminiscent of 9/11. | | | | generally it is too late. It's already moved and |
| However there is always a group of private investors | | | | therefore it is time to move on. |
| who think they can outsmart the market. Take five | | | | Trading is all about understanding the reward and the |
| minutes to log onto any web discussion forum on | | | | risk a particular opportunity offers us. The primary |
| "stock market investing" and you will see hundreds of | | | | question that most people asked when they're about |
| investors banding reasons around as to why they | | | | to place the trade is "how much money can I make? |
| should now buy this very undervalued and high | | | | " |
| opportunity stock - as it has fallen from 6.50 to | | | | The real question, they should be asking is "How |
| £4.50. Of course, they jump in, scooping up | | | | much money can I afford to lose ?" |
| ten thousand pounds worth of stock at, a very | | | | Trading activity has a ballooned in the last five years. |
| princely price of £4.50 a share. | | | | Private investors these days can access the stock |
| What happened the next day? | | | | market with as little as £500. It means |
| The stock shuddered to an eye-watering | | | | nowadays, you can bet whether you think stocks, |
| £2.82 than to national disbelief £1.70- | | | | are likely to rise or fall - and the profits you collect ? |
| ouch! Unsurprisingly, the bulletin board fell silent - and | | | | Completely tax free. |
| remained that way for the next three weeks. | | | | I am often asked, how can this continue? Will we be |
| This happens all the time, investors think they can | | | | able to trade tax-free forever? And the answer is |
| outsmart the market. They think they must come up | | | | most certainly yes, at least for the foreseeable |
| with novel or interesting ideas All too often, these | | | | future. |
| ideas end in painful experiences. | | | | Why? |
| Why do we actually think we have to outsmart the | | | | Given practically anybody with £500 can open |
| market, is it the Hollywood that has us to believe | | | | a trading account and the nature of financial spread |
| there is a dark group of savvy individuals, much like | | | | betting means that if you lose, the broker tends to |
| Gordon Gecko who toil away relentlessly in ivory | | | | win. Statistics today suggest over 80% of people |
| towers of investment banks hatching clever schemes | | | | lose when they start financially spread betting, |
| to constantly outsmart the market? - possibly. | | | | particularly if they've had no professional training. |
| However, most of the madness stems from our | | | | Therefore, if you were Alistair Darling would you |
| psychology. When markets are moving in predictable, | | | | rather tax lots of private individuals with small |
| relatively boring patterns which offer safe | | | | accounts and little winnings or would you rather tax, |
| investments with decent up side - we do nothing! | | | | the colossal brokerages that are amassing huge |
| In very much the same way gamblers become | | | | corporate profits from this increased and excited |
| seduced by the flashing lights and hypnotic sound | | | | dealing activity? |
| patterns from the gaming machines in pubs and | | | | |