The Trends to Look Out for When Trading or Investing
For beginner investors, it can be difficult to navigate trends in the market. Which are the short-term bubbles, and what trends are here to stay?
Oleg Giberstein, co-founder of Coinrule, offers new investors some advice on bad habits to avoid and potential avenues of interest to pursue.
There seems to be a widely accepted narrative that ‘normal’ people can’t make money investing. They should simply put their funds into a so-called robo-advisor which will put their cash into index-tracking passive investment funds.
In reality, this type of investing (known as ‘black box’ investing) is a terrible idea. It involves a computer using complicated formulas to achieve returns. However, because an investor may not understand the model, it can lead to unforeseen problems that the investor is unable to react to or even mitigate. This investment approach also goes against the unfolding fintech trends. It looks backwards to when investing was for the elite. However, investment is being democratised.
So, how can the non-professional investor get the most out of the markets?
1. Avoid robo-advisors
Robo-advisors are a class of financial advisers that provide advice or investment management online with moderate to minimal human intervention. Their advice is based on mathematical rules or algorithms only. They charge a management fee, often 1% of your funds.
Although passive-investing has worked while the markets have been going up, this won’t go on forever. Remember Michael Burry in ‘The Big Short’ who predicted the Subprime Mortgage crisis leading to the financial crisis of 2008/09? He is now warning that Index Funds are the next massive bubble.
Although passive-investing has worked while the markets have been going up, this won’t go on forever.
With some research, anyone can create their own long-term, low-cost multi-asset fund held via a platform, with total costs below 0.5%. Explore platforms like eToro or IG Index to buy an index fund that holds a range of stocks directly, or create your own.
To spread your risk, pick stocks from different industries and decide what percentage of your portfolio you want to allocate. If that percentage becomes higher or lower over time, you can buy or sell to balance it out.
2. Don’t chase trends
When the dotcom bubble collapsed, those left holding worthless stocks were mostly the retail investors who’d been lured into buying the ‘trend-of-the-day’. The trend-of-the-day today is passive investing into index funds.
I keep the majority of my funds in safe, liquid assets with only about 20% of my portfolio invested in high-risk high-reward assets, like cryptocurrencies or certain tech stocks. This is called a ‘Barbell strategy’ and has become better known thanks to professor and trader Nassim Taleb, author of ‘Black Swan’.
Cash in a 0.1% rate savings account doesn’t seem attractive, but having the majority of your money in cash, gold or bonds, means you’re protected. And you can buy when everyone else is panic-selling during a market crash because you have cash available.
3. Use advanced trading tools
Robo-advisors give you average annual returns in normal times. But when times are bad, I wouldn’t want to be sitting in an index fund when everybody is trying to get out at the same time.
Those who get out ahead of everyone else are the ones who won’t suffer. When markets dropped over 30% in March 2020, Hedge Fund Pershing Square reported $2.6 billion in profits in under a month.
Hobby investors tend to shy away from anything more complex than buying and selling. But they miss out on major market opportunities. A simple ‘Put’ option can act as an insurance that allows you to sell a certain financial asset at a predetermined price: perfect when you want to protect yourself against a market drop.
Moreover, automated trading rules allow hobby investors to use algorithms to trade like professionals. Platforms like Coinrule provide the tools to build strategies that protect against losses and help catch market opportunities. By designing and then automating the strategy you don’t need to sit by the computer all day. Innovation is starting to provide access to the markets for more and more people.
4. Keep learning
Trading and investing is hard. However, most of the problems holding normal people back are related to access. Access to the right trading instruments, the right knowledge and the necessary experience. If you just put your money into a passive fund, you never learn and are forever victim to whatever crisis hits the market.
Study the markets. Books like ‘The Intelligent Investor’ by Benjamin Graham, ‘What I Learned Losing a Million Dollars’ by Paul and Moynihan and others provide great introductions. Tools like TradingView make chart reading accessible. Free resources and communities allow normal people to get up to speed quicker than ever.
If you just put your money into a passive fund, you never learn and are forever victim to whatever crisis hits the market.
5. Decide for yourself
Platforms like Robinhood, Freetrade or Revolut have taken the retail online investing market by storm. But they don’t go far enough when it comes to financial inclusion.
The need for a market that at least has the potential for full transparency, fast learning and large opportunities is there. And cool new tech is making it a reality.
Do your own research. Learn to make your own judgements. Use the platforms and tools that offer full transparency and have the ethics that you value. Companies like Luno, eToro, Coinrule, Kraken and TradingView stand out as frontrunners in making exciting investment opportunities accessible to normal people.
Does trading take time? Is there risk? Yes. But it’s better to face the risks instead of sheepishly following the crowd and pretending it’s risk-free. We need to take responsibility for our finances. It is better to fail and to learn than never to try. And people are starting to buy into this vision. Opportunities abound for the non-professional – and they aren’t disappearing anytime soon.