newbies vs oldies : the shares vs derivatives

[diaan]

I just read Electrox's comments on the banks. As I understand him, he is saying that one must go short on the banks. Problem for me, as a newbie is that other than a vague idea that one does this by means of futures or warrants, I don't really know how to go short on a share. Even if I did, it seems to me that with the mulipliers involved the risks are far greater. For newbies like me who have day jobs, it is perhaps better to purchase the underlying share untill I get to know the market better and can devote more time to looking at a screen. I might be mistaken but it seems that a lot of the comments on the forum might be more applicable in the context of derivatives than the underlying share....

[Brazen]

diann, I've said this so many times on the forum that I've bored the pants off everyone. The money in the market is to be made in buying good TOP 40 blue chips and holding them for 10, 20, 30 years. AGL, MTN, SBK, PIK etc. Trading greared stuff is what you do with the bit you have left over, for fun and maybe, if you get it right more than wrong, good holidays, wine and restaurants. Don't confuse the two, and don't think 10 years is a long time.

[Brazen]

So, you could do a LOT worse that 90% of your capital in Satrix and 10% in an account where you can pretend to be a Master of the Universe.

[Electrox]

My comment was based on the financial sector. I would personally buy banks once it is esablished that a new bull trend has formed, instead of guestimating that we have reached the bottom. If you are buying for the long term say 10 years. the price you pay for now shouldnt be a concern if the fundamentals for the companies you buying are undervalued. In this case i would look to see what Allan gray see as undrvalued share with good growth going forward. (Their last quarterly report Recommends SAB Miller) :))

[Maggie]

That is fine Brazen if you have 10 20 30 years to sit around. Personally, I expect a return within 2 to 3 months. I guess this is the difference between an investor and a speculator.

[john_1]

I bought my first shares 3 years ago this week. anglos @ 140 thats a return of 283% in three years or 94% a year... geez that puts things in perspective..

[Brazen]

Yip Maggie. And 2 to 3 months is usually just how long it takes for those who want returns in 2 to 3 months to disappear from the markets forever.

[louisg]

John your gain from 140 to 542 over a 3 year period is a compound increase of 57% a year not 94%. Still a fantastic return. Well done.

[john_1]

I knew my maths was wrong I just did not know why, and I had nothing to do with it I simply bought the bellweather and have held since... the point is if you buy quality economics you don't have to do anything.

[louisg]

100% correct

[john_1]

out of interest what is the maths to calculate this correctly.

[DCTrader]

(Ending value/Beginning balue to the power of 1/n)-1. So... (542/140^1/3)-1 = 57% per year. n is the number of years you hold for.

[DCTrader]

john... just google CAGR