During this week's Invast Insights we cover: ► Portfolio management tips and tricks ► Building your portfolio ► Having the right mindset GRAB A 4 WEEK INVAST INSIGHTS FREE TRIAL (WEEKLY NEWSLETTER) http://invast.com.au/insights CONNECT WITH INVAST TODAY Facebook ► https://www.facebook.com/invastglobal Twitter ► http://twitter.com/InvastGlobal Linkedin ► http://www.linkedin.com/company/invast Invast ► http://www.invast.com.au Google+ ► https://plus.google.com/+InvastAu/

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This week…
• Portfolio management
tips and tricks
• Building your portfolio
• Having the right mindset

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This week we look at the following topics:
• Portfolio management tips and tricks
• Building your portfolio
• Having the right mindset

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Last week we wrote about the Australian stock market looking vulnerable in
our Invast Insights report. We said “The Australian economy is heading for a
very difficult period as commodity prices fall and the building and
construction activity along the east coast of Australian starts to ramp up
from depressed levels, albeit at a moderate pace probably not enough to
cushion the blow from mining.
We continue to hold a bearish view on the Aussie dollar and think it’s going
down to the mid 80 cent range against the US dollar over the next year or
two. We have articulated these views on the Invast blog in recent weeks. As
the Australian dollar falls, foreign investors will be looking to reweight their
exposure to Australia, knowing very well the leverage Australia has to
disappointing data which continues to come out of China.”

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We went on further to say “From an asset allocation perspective, we
continue to see the need to have adequate levels of international exposure.
The falling Aussie dollar provides an opportunity now to crystallise very high
levels relative to other currencies. As the Aussie dollar falls, the value of
international positions grows in local currency terms, all other things being
equal. It has already fall by around 200 pips since we initially voiced our
concerns on the Invast blog last week and more than 500 pips since our
webinar in late June cautioning the fall in the Australian dollar”
Our focus this week on building out the portfolio. The first and most
important element of building a portfolio is having the right mindset.
What does this mean?

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Most traders and investors enter the market thinking that they can generate
excess wealth. They start with the incorrect assumption that they are
smarter than everybody. This is often the first mistake. The market is a
collection of many participants who all think they have the edge. They are
willing to put either their money or the money of their clients to use. The
most important part in becoming a successful investor is in starting out with
humility.
To be successful in investing or trading, you need to respect your opponent
– the market. Every successful sporting great has held this view. Sporting
coaches teach their players to respect the opponent. When you don’t
respect your opponent, you become prone to shocks. Likewise in markets,
the person on the other side of the trade is your opponent.

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You need to develop and understanding what drives the market and often step back to see
what the market is assuming. The market isn’t always wrong and if you find yourself
constantly fighting the market it is often a sign that you are on the wrong path. Sound
familiar? Read on.
We spend a lot of time in this publication discussing
the importance of having the right “way of
thinking”. Existing Invast clients have been through
this before. We tend to write pieces on trading
psychology every few months. Some of you might
find this repetitive but it is crucial. The greatest
asset a trader or investor has is their ability to think
and turn those thoughts into profit. If your way of
thinking isn’t update, your profitability will become
very sporadic or worse, you will start to lose money.

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The point in this note is that we don’t want you to start investing with the assumption that
you will beat the market or as some investors in the United States often say, “beat the street”.
The first assumption you should always start off with is that the market is usually well
informed and is made up of a whole range of people who are willing to put their money to
use. This doesn’t mean that the market is always correct.
If you start with the assumption that the market is
usually right you can then start to also accept the fact
that sometimes the market doesn’t get it right.
Sometimes the market over estimates the threats of
challenges, these find their way into incorrect
assumptions which impact pricing. This is where the
individual investor or trader can exploit the situation
and start to put together a plan to take advantage. It is
only in rare circumstances that the market is wrong. If
you accept this, you will stop falling into the constant
trap of fighting the market.

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Our experience and the feedback from many smart investors we regularly talk to is
that being contrarian doesn’t always pay off. Sometimes following the trend is a lot
more profitable, even though it might conflict with your initial impression. For those
interested in trading stocks, we have found the following formula works really well:
* On larger companies, it is worthwhile at times being conservative. Sometimes the
market gets it wrong and large institutional investors don’t have the luxury of time,
which an ordinary investor can afford. It is worthwhile becoming a contrarian on
large companies if you have the time and patience.
* You cannot be a contrarian and buy against the trend unless you are willing to
hold out. Many large companies have the ability to turn themselves around. They
have access to capital, to resources. They can survive which is why we suggest a
contrarian should only limit themselves to large companies.

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* Smaller companies are a lot more fragile, they have the ability to disappear much
easier. Because of this, we suggest with smaller companies to only follow the trend.
Many smart investors target smaller companies, which they think have the ability to
become future leaders. They get paid a lot of money to find these opportunities and
so they spend a lot of time speaking to management, understanding businesses and
pinpointing future opportunities.
* With smaller companies, don’t try to be a hero and fight the trend. You will usually
lose, particularly when a stock price is falling. Foregoing upside potential is
something you can live with but holding onto a small company which is being sold
off by the market is usually a recipe for disaster. Those who have recently traded
stocks in the Australian market know exactly what we are talking about here.

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For those trading currencies, commodities and indices, the same doesn’t necessarily apply.
Your biggest asset here is your system. Your system is based on your own experience, it meets
your own goals and risk tolerance levels.
Systems take many years to develop, sometimes
decades. It doesn’t come easily. The notion of
developing a system is similar to separating the two
types of stocks on the market but because currency
and commodity markets are so much more diverse,
the system needs to also be robust enough. This is
why businesses like Invast have spent years
developing their own proprietary software like
ST24, which combines the best systems around the
world and bring them to individual investors.

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We will continue to expand on this notion into the future. For now we just want you
to know that humility is vital. If you have been in the market for a while we suggest
that you apply more humility to your planning into the new financial year.
Your actual portfolio needs to start out with your stated goal, your own road map.
What type of return are you targeting? Usually the most successful investors start
with the risk free rate – call it 4-5% in Australia at the moment and then add a risk
premium to accommodate for their investment or trading. Usually the number
comes out between 8-12% - this isn’t a hard rule but most investors will realise that
this is a sensible return to aim for as an average over a three to five year period.
Once this has been established, investors and traders can then set their own asset
allocation and trading system to meet this annualised goal over the medium term
horizon.

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We can’t provide any individual or personal advice in this publication but we hope
what you have read above changes the way you think about the current
composition of your portfolio – particularly for those holding Australian listed
shares. This week’s webinar is crucial, it comes at a time when the Australian dollar
is falling and the global flight of capital out of this country is seeing a spill over effect
on the stock market. I hope many of you who read this report attend the webinar
and ask questions about the right way of thinking and the need to have an adequate
goal and asset allocation framework in place.

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Stocks outlook: Join the webinar to discuss these points
Invast Insights editor and contributing author Peter Esho will summarise the September
outlook guide for the Australian stock market in this exclusive webinar. Esho is a regular
contributor on CNBC, Bloomberg and host of ‘Your Money Your Call’. In his webinar he will
outline:
Performance of key blue-chip companies
Performance of emerging smaller companies
Outlook for the ASX200 index
Portfolio management tips and tricks
Peter’s webinar will cover both the fundamental and technical outlook going forward plus the
key drivers to look out for and is expected to fill fast. Q&A will be open straight after the
webinar. Register now by visiting http://www.invast.com.au/resources/webinars.aspx.

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Go to www.invast.com.au/insights to get a
complimentary 4 week trial and receive the latest
insights as they are published to our live clients.

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Disclaimer
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