Thursday, July 27th, 2006
Profiting from a simple ‘big’ idea
Investment books can be divided into two categories: those written by real world investors and those that aren’t.
The actual title escapes me, but a review once described a trading book as “authentic” because its author had clearly experienced the highs and lows of the market.
For those who deal with the cut and thrust of daily investment decisions it is easy to separate the ‘authentic’ books from the pretenders. The Aggressive Investor by Colin Nicholson fits well within the ‘authentic’ category.
Nicholson has traded the Australian market for 30 years and taught at Dr Alexander Elder’s trading camps. He could be described as an ‘active investor’, combining both value and growth approaches with elements of technical analysis and market timing
The Aggressive Investor is essentially an outline of Nicholson’s own investment plan (so others can learn how to create their own), which revolves around what he calls ‘the one big idea’.
“For some reason, most people seem to believe that complex ideas are better in some way than simple ideas,” he writes. “What the great investors know is that it is the simple ‘big’ ideas that make a difference … The common trait of the best investors is that they exploit a very strong concept that they can explain in simple terms.”
Nicholson’s simple ‘big idea’ is that markets trend. “The simple big idea, around which everything I do revolves, flows from the observation that stock markets and individual share prices tend to move in trends and that those trends often persist for periods of from one to many years.”
He uses the basics of the Dow Theory to define a trend (an uptrend is a series of higher highs and higher lows). I am yet to find a better or more useful outline of Dow Theory and how to apply it to stocks, than Nicholson’s.
With thousands of indicators, oscillators, information sources and data, the book’s major benefit is the clarity it brings. Nicholson is proof that simple, clear strategies laid out in a personalized investment plan work best.
“I have lost track of the number of times someone has sat through my seminar, in which I outlined my investment plan, and then came up to me and commented on the simplicity of what I have taught them,” he writes. “They are always surprised, and some are quite disbelieving, when I tell them that my seminar is everything I do.”
Nicholson also deals with the critical area of investor psychology in a chapter titled ‘Winners Think Differently’. He recently expanded on this, writing another book ‘The Psychology of Investing’, which I am yet to read.
The Aggressive Investor is available at Nicholson’s web site where there is also wealth of free information, particularly in the ‘Ask Colin’ section.
Investors in the US or UK should not be put off by the fact that Nicholson trades the Australian market and uses examples from it. It is rare for such an experienced investor to lay bare their investing/trading plan for all to see. It is worthwhile taking up the opportunity to view it.
This entry was posted on Thursday, July 27th, 2006 at 7:44 am and is filed under Books, General investment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
