The Game of Investing, Vol. 23
We’re going all in on time horizons, and how to recognize the short-, mid-, and long-term strategies that fit with your own unique investment goals.
Jamie McDonald, a former hedge fund trader turned markets educator, will walk us through this investor masterclass.
- “When it comes to trading and portfolio management, position sizing, entry and exit points, and time horizon are all interconnected,” says Jamie. “It’s important to consider them collectively rather than individually.”
In this issue, we’ll cover 2 things:
- How to determine the time horizon that best suits your goals.
- How to build investment ideas that fit your time horizon.
Now let’s get started.
Welcome to the Game
Welcome to The Game of Investing, a bi-weekly newsletter bringing you “aha” moments and actionable lessons from Real Vision experts. No matter your level of expertise, markets are tough — which is why we all have to put in the work. Ultimately, the game of investing is a competition with yourself. Our mission is to help you navigate the path to success. Prepare to level up.
Let’s get started.
LEVEL 1 — Determining Your Time Horizon
A time horizon is the period of time an investor expects to hold an investment before selling.
Each of our time horizons varies according to the specific investment and our own unique goals and strategies.
- The longer the time horizon, the more time an investment has to compound and increase. This allows investors to be more aggressive in their risk-taking.
- Conversely, shorter time horizons require more vigilant risk management protections.
As investors, recognizing the optimal time frame to achieve your investment goals will go a long way in determining how you invest, which type of trades you take, and how aggressively you manage your portfolio.
So, to start that journey, there are a few things you need to ask yourself:
- What’s your risk appetite?
- What are you doing this for?
- How actively can you watch the markets
Risk-averse investors, and those saving for long-term goals like retirement or a child’s education, may favor a longer time horizon.
Meanwhile, people with a high-risk tolerance — or those who are primarily investing to earn an income — may opt for shorter time horizons.
But shorter time horizons require active risk management, so if you don’t have time to watch the markets all day, short-term trading may not be for you.
Intermission — Join us at superai
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Edward Snowden, Benedict Evans, Balaji Srinivasan, and over 150 others will hit the stage — joining the industry’s most influential minds to explore the next wave of transformative AI technologies.
Singapore will host over 150 side events for a week from February 26 to March 3, becoming a vibrant AI hub full of unparalleled networking opportunities.
Industry leaders and builders at the bleeding edge of innovation will drive an agenda covering the state and future of AI, robotics, fintech, healthcare, art, gaming, the metaverse, and much more.
Get 20% off your tickets by using the code REALVISION right here at SuperAI.
Now back to your regularly scheduled programming…
LEVEL 2 — Your Idea Horizon
“Of course, there’s no one-size-fits-all strategy,” says Jamie. “Many long-term investors will also make short-term trades to hedge or supplement their positions… Understanding how and when to employ different strategies will level up your investing.”
As Jamie rightly points out, time horizons are simply one aspect of the investing process… The key is figuring out which types of trades work best across various time horizons and when to employ them.
To do that, we need to focus on market drivers. Whether you have a long- or short-term horizon, understanding the trends that drive markets will enhance your results.
A market driver is a factor or a set of factors that influences price and shapes market psychology.
- Secular — long-term trends driven by major shifts such as demographics, debt, technology, and globalization.
- Cyclical — trends that last anywhere from a few months to a few years. These are driven by the business cycle.
- Tactical — short-term trends driven by market sentiment and news flow. Tactical traders look for opportunities that only last for a few days or weeks.
When developing your trading strategy, focus on finding trade ideas that are driven by the market driver that will best fit your time horizon.
If you’re a day trader focused on earning an income, tactical trends, and the daily news flow will inform your process. You should be aware of cyclical and secular trends, but building trade ideas around them would not suit your goals.
“Whatever your chosen strategy, be honest with yourself about your true strengths and weaknesses,” says Jamie. “Constantly reassess your analysis and adapt when your goals change.”
Thanks for reading. In our next issue, we’ll dive into the wild world of futures trading.
See you then.
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