Starting With Shares. Roger Kinsky
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that you can understand even if you know virtually nothing about shares. As far as possible, I avoid the use of jargon — although I do have to use some of the terms commonly used with shares because you need to understand them to find your way. But before I use a term that might be unfamiliar to you, I explain it first in everyday, straightforward language.
If you already know a fair bit about shares, you may want to skim over some of the content in the early chapters. But there's an inherent danger in this that I now discuss.
Types of knowledge
Knowledge comes in several types. One type is the knowledge you know you don't know. For example, you may be aware that you don't know much about servicing or repairing a car. So when your car needs servicing or has some problem, you take it to a mechanic who has the required knowledge and can service or repair your car. But there may also be a whole mountain of knowledge out there that you don't know you don't know. This is called blissful ignorance, because you don't worry about things you don't know about. For example, your car could have a fault that you're not aware of and so you keep driving the car until the fault gets worse. One day you notice the problem and take your car to your mechanic. The mechanic may say something like, ‘Well, if you had brought the car in to me earlier I could have fixed the problem easily and cheaply, but now it's a big and expensive fix’. The reason you didn't bring the car in earlier was because you weren't aware of the problem.
When it comes to shares, you may be aware of your lack of knowledge in certain areas but you might also have a lack of knowledge in areas you're not even aware of and that might cause problems.
Finally, there is knowledge you think you know but really don't — and this can be very dangerous. For example, when I first bought a yacht and started cruising, the yacht once ran aground during the night. I'd thought I knew how to anchor a yacht safely but, in fact, I wasn't following the best procedure at all and when the wind changed unexpectedly while I was asleep I ended up in trouble.
That's why I suggest you don't fast‐forward through the early chapters without at least skim reading first to ensure you aren't skipping over something you really don't understand.
How long is the journey?
You're probably wondering how far we're going to go and what you really need to know so you'll be able to make a success of share investing. You can access a whole heap of info about shares — in fact, I reckon you could spend the rest of your life going through what's available and you still wouldn't have touched all of it.
‘How can I hope to compete?’
If you try to learn too much, you can easily become overwhelmed and reach the point where you do virtually nothing — known as paralysis by analysis. So I'm not going to try to take you to an advanced knowledge level about shares. If I tried to do this, the book would end up being a tome and you'd be deterred right from the start. So I'm going to take you only as far as you need to go to become a successful share investor. You can acquire the rest as you get into shares, or if you're sufficiently interested, you can obtain more advanced knowledge later on.
The really heartening news is that you don't actually need to be very savvy on all aspects of share investing to be a profitable share investor. Some really simple and successful strategies have been devised that focus on only a few key issues. If you are faced with a choice of strategies, I suggest you choose a simple one in preference to a complex one that requires heaps of information or the use of sophisticated computer algorithms.
Tip
If you get to the point where you want to expand your knowledge about shares, I can recommend the following books. Naturally I can recommend them because I wrote them!
Teach Yourself about Shares, 3rd edition
Online Investing on the Australian Sharemarket, 5th edition
Shares Made Simple
Charting Made Simple
Markets are unpredictable
You might think that the more you learn about shares, the better you'll be able to predict how the market or a particular share will perform. A friend of mine who's knowledgeable about shares recently told me he had sold all his shares because he was sure that after the market recovered from the downturns caused by the COVID‐19 pandemic, it would dive again. Guess what? The market kept rising and reached new heights.
The sharemarket is difficult to predict basically because people buy and sell shares and it's very difficult to predict how a person will react in a certain situation. So imagine the difficulty in trying to predict how thousands will react to situations on the sharemarket that change all the time. Another complicating factor is that people have an instinctive tendency towards ‘herd’ behaviour, ingrained over thousands of years of human evolution. This instinct tends to make them want to take safety in numbers and ‘follow the leader’ — so just a few people acting in a certain way can influence others to also act in the same way. Different strategies can work in different situations, and no one strategy works well in all situations. No ‘magic bullet’ exists with shares. Ignore anyone — including a respected share authority or advisor — who tells you they have a system with shares that succeeds in all situations. Especially walk away if they want you to part with a sizeable heap of your hard‐earned money to gain access to this super‐duper system.
You might argue that computers can be programmed to trade shares and computers don't make mistakes. That's true but the fact that computers don't make mistakes doesn't mean they can predict the future with any degree of certainty. Computers need programs and those programs have to be written by a person. They will reflect the programmer's preferences and experiences and, therefore, still operate with in‐built biases.
Tip
The uncertainty and unpredictability of shares actually works in your favour because they mean you can be as good as anyone else. You don't need to pay advisors and you don't need to buy an expensive computer program to make a success of share investing. All you really need is an understanding of how the sharemarket operates and how to access the info you need. After you've read through this book, you should have that knowledge — and then it's up to you to apply it to your best advantage.
Dealing with the uncertainty
I don't want to give you the impression that because of the uncertainty involved with shares, learning about them or applying strategies in different situations is pointless. When you're operating in an uncertain environment, the trick is to swing the probabilities in your favour. That's really what this book is about — helping you to adopt strategies that will improve your chance of success in the various situations you'll encounter with the sharemarket.
Because of the uncertainty with shares a certain strategy may work well in some cases, but the opposite strategy might also work! Let's look at an example. Consider the following two strategies:
Strategy 1: Buy shares that are at the top of their 12‐month price range. The reasoning behind this strategy could be, ‘The share price has been rising and that's a good sign. If the price rise continues, I'll make a good profit by buying the shares now’.
Strategy 2: Buy shares that are at around the bottom of their 12‐month price range. The reasoning here could be, ‘If the share price has bottomed and starts to rise again, I'll make good profits because I’m getting in at the ground floor’.
You