How easy is it to make money trading individual companies?

I used to  attempt to identify companies whose stock prices were going to rise in price, as well as those that were going to fall, and place spread-bets accordingly. Unfortunately, it seemed that I was either wrong, or that I was incorrectly implementing my techniques, because it seemed that all that happened was that my spread-betting account went down in value. Yikes!

I was not alone, apparently According to the Financial Conduct Authority, 82% of traders using a product produced by the spread-betting companies, called CFDs, managed to lose money.

This impression was reinforced by an article that I read in MoneyWeek last week, written by Matthew Partridge. Matthew has been attempting to make money by both buying some companies (‘going long’), and selling other companies (‘going short’). This is a ‘market neutral’ strategy that, theoretically, would not be affected by a market crash.

Matthew has been very transparent about his trades. He has nine ‘long’ positions and these are in profit to the tune of a very modest £66. His short trades, however, are losing £254, so overall, his trading is making a loss. I do not write this to denigrate his efforts. After all, I was attempting to do the same, and lost much more money than that! I think MoneyWeek is a great read, by the way.

My trading these days tends to focus more on the different asset classes, looking to benefit from rises in their price, and exiting the market when they fall in price. For shares, I use a unit trust that is actively managed, and trends better than an index ETF. For property, I use an investment trust (a REIT), for gold I use an ETF, and for exposure to commodities I use a commodity investment trust. For bond exposure I simply use three differently denominated ETFs.

Why do I trade asset classes, rather than individual shares? Because it removes individual company risk. If one of the companies that makes up part of the ETF that I hold has a bad year, it will not affect the whole portfolio significantly. The downside is that stellar performance of a company will be hindered by lacklustre performance of others. The difficulty is identifying the stellar companies, and avoiding the lacklustre ones!

Next week, I will discuss the performance of my trading/investment strategies.

If you are interested in my views of the different asset classes this week, have a look my video: 

2017 10 07 weekly asset class review from Andy Trendfollower on Vimeo.


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