A Parallel Universe

Friday, 13th April 2012 11:53 - by Moosh

For my first proper post, I think a rehash of a recent post from my diary chapter is entirely necessary: Suppose I had a headache and went to my pharmacist, who threw me a box of tablet X with only a strip of tablet X inside, and sent me packing. Great! So off I go home, all happy with tablet X, which is going to solve my issue. I get home and then I have questions. I have tablet X, so now what? I know I've got a headache so I assume it's going to solve that, but... - What does drug X actually do? - How many am I going to take? - When should I take them? - How long between doses? - Is it a perfect tablet or will it give me side-effects, and how serious could those effects be? - How long do I have to take them before I should see an effect? - What's the maximum time length I should self-medicate before I see a GP if they don't work? Of course, this is a hypothetical situation, and many of these questions would normally be dealt with in the patient information leaflet. I think parallels exist with a complete approach to investing. Using the pharmaceutical analogy above - Company Y is thrown in your direction; what questions do you ask yourself (which only you will have the answers to, using all the publicly available information - RNSs, company website, technical analysis, etc.)? Along the lines of the example above... - What does company Y actually do? - How much am I going to invest? (Subjective according to amount of capital to play with and the personal goals per investment/strategy) - When should I invest? (Use of technical analysis to gauge oversold/overbought status of share price (SP) on varying timeframes) - If I've 'missed the boat' in one oversold/overbought cycle, how long am I going to have to wait before the next cycle begins, or if I don't want to wait, then am I going to vary the amount I invest to account for the fact that I've missed the oversold 'better buying' opportunity? (A combination of technical analysis + personal money management) - Does the investment have inherent risks that I should be aware of during the period of time I wish to invest? (All investments are risky, right?) - How long am I going to invest for? - If I don't see a profitable return in N weeks, what will I do? Do I leave it longer or 'cut & run'? I like to use these questions as a general starting point and then see if any other questions arise depending on the company I want to invest in.