Sensible trading can be a winner

Published in the Geelong Advertiser, June 2015 by Dale Gillham

Would you like to create an additional income stream?

Each year I run a workshop called the “Art of Trading” — and this year the theme was “Trading for cash flow”.

I rarely meet a person who is not after additional income.

So here’s what you need to think about:

Most people mistakenly think the only way to get money out of the market is to put a large amount of capital into buying the biggest shares, paying the biggest dividends.

You can earn 4-5 per cent per annum just in dividends, which are usually received in bi-annual instalments.

Sounds easy doesn’t it?

In my opinion this creates two big problems.

First, I find very little, if any, thought goes into preserving capital, which is wrong as even big shares can fall, costing you much more than the dividends you receive.

Look at Woolworths. It has fallen around 30 per cent in 12 months.

Second, even if you do have sufficient capital to generate enough income, do you really want to wait six months to receive a payment?

Alternatively, you can learn to generate a more regular income stream, which is popular if you want to replace your job, and it will help keep your brain active.

To do this you require:

  1. A clear goal.
  2. The knowledge to buy and sell shares.
  3. A strategy that shows you how to create income.

So what do we expect in the market?

Last week the Australian market closed at 5668 points, well above the lower band of my target zone for the downside at 5600 points.

It was great to see the All Ordinaries Index quite buoyant into Tuesday’s close, achieving 5770, well above the upper band o f my target zone.

That said, we may not be clear of volatility just yet.

Where the market closes this week will be im portant.

My analysis indicates the index may pull back a little, but a steady move back above 5770 would be a good sign.

If the market falls again it is likely to stabilise above 5500.

Ideally, the next rise will not occur quickly. For now, smart investors will continue to buy quality stocks, predominantly in the top 100.

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