Making a Million Using Stocks and Shares ISAs - Part 8 of 26
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Stock Market, Investment Fund on 19th February, 2010.
Tags: investment fund, isa, isa trend investing, liquid millionaire, million, stock market.
Over the last few months, I’ve been writing an ISA Trend Investing Guide that shows you how you could make a million using ISAs.
Over the next few weeks/months, I’ll be giving you an exclusive sneak preview before the main newspapers get their hands on it because I suspect that some time in the future, you’ll be seeing a copy inside your favourite weekend broadsheet.
In my previous blog I started to share with you 7 lessons about how the stock market works and presented Lesson 1: Markets keep going higher and Lesson 2: The market works in cycles.
Today, I’m going to sharing with you 2 more lessons about how the stock market works.
Lesson 3: Three out of every four stocks (and funds) move in the same direction as the market
Because three out of four stocks move in the same direction as the market, the performance of the funds you choose to be protected by your Stocks and Shares ISA will be directly linked to the market’s direction. That’s because investment funds own a large portfolio of stocks. And so if the market is trending up, three out of every four funds will move up.
But if the market is trending down, three out of four funds are going to move down. And if the market is trending sideways three out of four funds are going to move in which direction?
Yes, you are correct – sideways.
When the market takes a heavy fall, investors who do not know how the market works will probably blame either the fund manager or their advisers for their losses.
But what they really should be doing is noticing and understanding the link between their fund value dropping and the market heading downwards.
You see most investors do not know that three out of four stocks will always move in the same direction as the market.
That means even if you own a fund that is managed by one of the best fund managers in the world, if the market takes a dive, that fund you are invested in will also be likely to take a dive.
Lesson 4: The stock market can be timed
Opinions are divided on whether the stock market can be timed or not. At ISACO, we strongly believe that markets can be timed – although it is not easy to time markets accurately.
So where do you start?
First of all you need to understand how to read and analyse the stock market’s health.
To do this, you have to observe and study the major indexes carefully. Here they are:
• The Nasdaq Composite
• The S&P 600
• The S&P 500
• The Dow Jones Industrial Average
As well as watching these four indexes, it’s crucial to watch the behaviour of leading stocks and leading sectors.
By studying these four indexes plus the action of leading stocks and leading sectors – each and every day, you can come to realise meaningful changes in the daily behaviour at key turning points like market tops and bottoms and learn how to capitalise on them.
Next week I’m going to continue to share with you the 7 lessons on how the stock market really works.
And learning these lessons could really help you accelerate towards your goals.
Until next time my friend.
Find Out More
If you would like to find out more about how you can make a million pounds through using an ISA and help make you a liquid millionaire then please contact a member of my team for a chat. You have my word there will be no sales, no jargon, just the facts.
Your friend,
Stephen Sutherland
The UK’s Leading Authority in ISA Trend Investing and Author of Liquid Millionaire
Please Note: As always, let me remind you that I am not a financial adviser and therefore not authorised to give advice on what investments to buy or sell.
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