Once you have decided to invest in RRSPs, the first decision is whether to manage your money by yourself, or to entrust your portfolio to professional fund managers.
In recent years it has become fashionable to malign the pros, few of which are able to consistently match - yet alone outperform - the major indices. Much of this is due management and sales costs involved in running a mutual fund.
With all the free investment information available on the Net and low trading charges many are tempted to try and cut out the middle man and do their investing themselves. There are slews of investment books that come out each year that give advice on when to buy and sell stocks. A quick glance two recent offerings indicates that competing against the pros is not as easy as it looks.
If it's Raining in Brazil, buy Starbucks
If you believe Peter Navarro, an economics and public policy professor at the University of California-Irvine, an understanding of key trends such as economic growth, interest rates, unemployment and inflation is a must.
"Regardless of what kind of investor or trader you are, a deeper appreciation of the systematic effects of macroeconomic events on the stock market can help you in your trading and investment decisions," writes Navarro.
For example if Starbucks stock drops significantly over several months, the savvy investor noticing that the rains have come to break a drought in Brazil, --the world's largest coffee producing nation, - will buy Starbucks shares.
But keeping up with such trends is no simple matter. One of Navarro's sample investor checklists has 24 trends to watch ranging from construction spending and durable goods orders to housing starts and international trade statistics. Investors are advised to be particularly attentive between 8:30 and 9:30 - just before the markets open -- when many of these reports come out.
Bollinger on Bollinger Bands
Bollinger, president of Bollinger Capital Management and a frequent talking head on CNBC, takes a different tack; incorporating technical analysis tools into his buy and sell decision-making processes.
"The key to effective investment analysis is to -- as much as possible - eliminate emotion and approach each trade on its technical and fundamental merits alone," writes Bollinger.
To do this, Bollinger has come up with his self-titled "bands." Bands are lines drawn around the movements on a stock-chart, which define the parameters that accompany market gyrations. According to Bollinger, by analyzing the width of these bands and where the stock is trading in relation to them, the savvy investor can get a good indication of where prices are heading.
But that's easier than it sounds. Individual investors who want to use these techniques had better buy a calculator. The book is filled with chart descriptions and complex formulas for calculating band-width criteria with names such as the volume-weighted MACD and the 20-day OBV oscillator.
The big problem with these books is that although the information provided is excellent, professional money managers are also reading them. However the pros are following markets full-time, and updating their charts in real-time. To keep up, it seems the individual investor pretty much has to do the same.
When the individual investor wades into the market, the pro has often already acted. For example by the time Navarro's investor has read the Brazil weather report in the Wall Street Journal, the pros have likely already priced the information into the stock, based on weather forecasts that came out two days ago.
Peter Diekmeyer is a Montreal-based business writer. He can be reached at email@example.com
|© 2001 Peter Diekmeyer Communications Inc.|