Education saves share market heartache

Published January 2012 by Dale Gillham

The over-riding emotions that govern how individuals make decisions in regards to their investments is fear and greed, according to leading share market analyst Dale Gillham.

It is for this reason that Mr Gillham, chief analyst of share investment company Wealth Within, believes everyday investors should educate themselves on how to properly invest rather than solely rely on the advice of brokers and advisors.

“Decisions based on fear stem from the concern of not wanting to lose money, while decisions based on greed result from a desire to make money now. 

In a volatile market, these emotions can be amplified, particularly when the investor lacks the knowledge and understanding required to manage the investment,” Mr Gillham said.

“Historically it has been proven that people with the right education are more successful and achieve better returns in the share market than those with little or no knowledge – because as the saying goes wealth is the transfer of money from the uneducated to the educated. 

Given this, it is wise to gain a solid education when it comes to trading the share market so that the investor is prepared to manage their psychology and the investment in any market condition.”

While seeking professional advice may seem like a wise choice, many people are lulled into a false sense of security when it comes to dealing with brokers and advisors, he said.

“They believe they are dealing with someone who has more wisdom and knowledge than they possess on their own. 

In the majority of cases, however, these professionals are paid a fee or commission to sell product, which means the educational value provided is limited to towing the company product line.”

“Advisors do have a role to play so I am not suggesting that an investor shouldn’t seek professional advice, but if they do I always recommend they question the advice and under no circumstances should they rely on only one person for this advice.”

“While many investors are willing to spend valuable time listening to their adviser to determine the next best investment, when it comes to educating themselves they never to seem to find the time. 

If the desire is to take control of your investments, however, the best option is to get a solid education from a reputable company that specialises in share trading education

This way you are equipped with the knowledge and understanding to make an educated decision.”

In the financial services industry people with little or no experience give their money to advisors who also have little or no experience other than to recommend product, he said. 

All too often this results in the advisor getting paid handsomely while the client has to suffice with average returns.

“The question you have to ask is would you give your money to someone who may not be any more educated at investing than you? 

While there are a number of good advisors who recognise that financial advice is more than just recommending product, on the whole they are governed by an approved product list, which means there is a lack of flexibility and impartiality when it comes to supporting you and your investments.

Given this, if you do decide to invest your hard earned money with an advisor, make sure they have a track record of delivering solid returns over a period of least four to five years.”

“The amount an investor has to invest tends to change their perception of the risk they are taking and the research required to manage that risk. 

Usually this is because it is much easier to swallow a $1,000 mistake than a $500,000 mistake. 

But the process taken to invest $500,000 or $1,000 should be exactly the same, as they both represent the same amount of risk.

Given this, irrespective of the amount of money you have to invest, you should always take the same amount of time researching your options to ensure you are protecting your capital on each and every occasion."

“Remember, the process taken to select and manage a portfolio of shares is the same regardless of the size of the investment. 

Given this, education is extremely important for any type of investor, however, I would say it is even more important for the smaller investor as they cannot afford to lose. 

Remember, big investors were once small investors, so the earlier you educate yourself the better.”

To learn how you can gain the required knowledge and skill to ensure your success in the share market click here.

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