In today’s article we discuss ways to track profits in you self-managed super fund (SMSF) and provide a guideline of what you should consider when recording your investments.
As SMSF investors we need to be rigorous in our record keeping. The whole aim of investing for your super fund is to profit from investing for the longer term, or be guided by a professional who has the requisite skills. This investing should be treated as a business and as such accurate record keeping is essential. Accurate and efficient record keeping will assist you in investing profitably, systematically and efficiently (without emotion), and give you some direct feedback on your investing style and results.
Creating a SMSF Trading Journal
The most important investing book you will ever read is your own SMSF trading journal. When used correctly it will guide you through your journey to being comfortably retired.
The SMSF trading journal is a place to record your trades, your thoughts and your results. A well structured SMSF trading journal is essential to your development as an investor. The journal allows you to first of all highlight the purpose of the investment, identify areas for improvement, then set goals to improve and review your progress.
If your SMSF trading journal is blank, then there will not be much to learn in the journey of investing for your retirement. Be constructive, if the journal is full of criticisms and put downs, you will not enjoy reading it. This is an essential tool for your SMSF and can help in your development and learning as an investor.
Start your SMSF trading journal as soon as you set up your self-managed super fund and before you start to invest. If you are new to the concept of investing for the long term, then you may need to do some research about investment instruments, time frames, and investing techniques like the concept of accruing franking credits.
Trading in your SMSF requires a longer term view, which can be achieved by investing in shares, options, indices or commodities. It is essential for you to remember that you need consistently profitable investments, so that you can build your retirement nest egg.
A SMSF trading journal may initially only include investment options and observations, identifying what happens when a set of circumstances arise. An example of this observation process would be to monitor what happens around the dividend season. By observing what happens around the time stocks that are coming up for dividends, you can to learn to identify investing opportunities as they unfold in the future. This is an essential part of the learning process before you start investing and can be used to develop your investing skills.
From historical research you can identify opportunities that may exist and following these in real time allows you to build the signal recognition skills and the confidence to invest in strategies around them. This process can be short cut by referring to a professional for assistance and we at D2MX Advisory can help. Contact us at 1300 610 024 or email email@example.com.
Creating Your SMSF Trading Journal
To be an effective learning tool a SMSF trading journal must include the following components to create a positive feedback loop. Start with your objectives and the opportunities that exist in the market for investments today. Next, record the investments that you complete, taking into consideration market conditions, your own feelings and the outcome of the trades, and then review your trades at the end of the day or week, and rate your performance (there are some good books on how to do this). This review is where you can identify areas in which you still need to develop.
Set yourself an investment goal (or goals) that are measurable and will make your investing successful, regardless of how much you make. Investing for the long-term is not about making money every day – it comes from gradual accumulation of wealth over time.
On a regular basis (daily or weekly) record your thoughts on the market that your intend to invest in, and each time you invest record the activity and the strategy that you are implementing. This includes what is happening in the market, how you acted on that and the outcome of the action. By recording any emotions here you can also get a handle on what emotions are affecting your trading. By monitoring your confidence and anxiety levels you can monitor your level of fear and greed.
Review your performance regularly (at the end of the day/week) to identify how well you did. It’s possible to make consistent returns following some simple strategies, but if you continue to invest badly you are very likely to give the money back. Identify any areas of weakness in your investing, so that you can improve in the future.
Preparing Your SMSF Trading Journal
Clearly identify definitive and measurable goals. It is essential to identify your SMSF investment objectives, because without goals and objectives, you cannot measure your performance. Your investment goals must concrete and measurable. Process-oriented goals work much better when trading than financial objectives.
The goal “I want to make $1,000 per week” is a goal over which you have no control. The market you are trading today may not provide the opportunities, yet on another week you may make $2,000.
Focus on what you can control, never attempt to control the market or make it conform to your ideals. An example of a strategy and goal could be to buy CBA shares 50 days out from the Ex-div date, with the intention of holding the stocks until it goes Ex-div, using a 15% stop. You could enter the trade and limit your investment parcel size to ensure you risk no more than $1,000. You may choose to raise your stop to break even once the share price has moved 5% higher. These goals are now within your control and you can have a successful investment in the market, even if you do not make money.
To build a habit takes time and repetition, so make sure you repeat the goals on a regular basis. An athlete will work on developing strength for a period of time and then speed, then endurance as another part of their training program. A SMSF investor will work on analysis for a period of time, then correctly sizing positions, then taking profits until the trader develops all the core skills required to invest successfully for the long-term. Refer to our previous article on Profitable Investing in your SMSF Super Fund for more information.
Updating Your SMSF Trading Journal
As we said earlier, record keeping is critical for a self-managed super fund. And with a little extra work you can journal your investment parameters and thought process you had before you entered into your investment. With a longer-term investment horizon, which should be used in your super fund, you can update the journal on a weekly basis.
Tracking your SMSF investments is critical for the auditors, but moreover it is important to record other information that helps you to improve your investment performance. A record that says “Bought at $25.00 and Sold at $27.50”, tells you very little about what was happening when you entered the trade. What was going on in the market? Which strategy did you use to identify the investment? How were you feeling when you entered the investment? Once you are in the position, did the market conditions continue to support the investment strategy? What signs made you decide to hold and what prompted you to short the position?
If you build up a record like this, it is much easier to identify strategies that are working for your super fund investing and you can then eliminate habits or behaviours that are negatively impacting your trading.
Once you begin to record additional information, such as reasons for the investment and the emotions surround the actual trading, you will begin to understand the impact of emotions on your investing, after you have been investing for a while. It is important not to get distracted by the noise of the market, but remain detached and observe how the market is moving, in an unemotional frame of mind. In this way you can act on what you can see, not react emotionally. By recording your emotions in your SMSF trading journal you can increase the speed at which you identify problem areas and can move to correct them.
Improving Your Investment Performance
Reviewing your SMSF trading journal will help you identify areas where you can improve your investing. If your win % is low, then look to improve your analysis and entry techniques and if your risk reward is small then take a look at your stops and profit taking exits. In addition to this a strong risk reward provides you with an opportunity to improve your scaling in to maximise your returns from the good trades when they come along.
As a part of your regular review, study your losing investments in particular. You are more likely to learn from these and you can aim to eliminate them through better analysis, a different strategy or minimise them through better risk management.
Like any successful investor, the drive to continually improve, to be a little better each day, makes the difference between a good investor and a great investor.
Record keeping is critical for a self-managed super fund (particularly for the auditors). And with a little extra work you can journal your goals, investment parameters and thought processes you had before you entered into your investment and review on a regular basis to improve your performance.
Regardless of whether you win or lose, every investment you make is a step forward in your SMSF investing journey. By pursuing process-oriented goals you control your development. Incorporating these goals into a feedback loop that allows you to assess how well you met your objectives on a regular basis, will put you on the path to improving your investing with every investment that you make.
Investing in your SMSF for profit should be treated as a business and these are just some of guidelines that you should consider to ensure that your SMSF investing is done profitably, systematically and efficiently, without emotion. Some good reading material on this topic include: Complete Investing for a Living including study guide by Dr. Alexander Elder’s and Trade Your Way – Financial Freedom, 2nd by Van Tharp.
The secret to above average returns in your SMSF is measureable performance, consistency, time and the power of compounding! In this article we have highlighted some guidelines that you can use to help your improve your investing performance.
We here at D2MX Advisory can assist you with taking action to invest consistently and we have strategies designed specifically to generate consistent, scaleable returns. Contact us at 1300 610 024 or email firstname.lastname@example.org for more information.
The market has provided some excellent opportunities this year. There are a number of dividend investment opportunities setting up right now, that you could potentially profit from. If you would like more information please contact me at call 1300 610 024 or email email@example.com.
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Investment Adviser – D2MX Advisor
This report was prepared by Michael Hevern. It represents the views and opinions of the author. It is not intended for use by any third party, without the approval of Michael Hevern. While this report is based on information from sources which are considered reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect my judgment at this date and are subject to change. Contracting Hevern Pty Ltd is a Corporate Authorised Representative No. 408868 of D2MX Pty Limited ABN 98 113 959 596, AFSL No. 297950 (D2MX), and Michael Hevern has been appointed as an Authorised Representative of Contracting Hevern Pty Ltd. Opinions, conclusions and other information expressed in this report are not given or endorsed by D2MX, unless otherwise indicated. The information contained in this Report is General Advice only, as the information or advice given does not take into account your particular objectives, financial situation or needs.
Disclaimer: Using leverage to invest can be a two edged sword, as it can magnify your returns when the stock price rises, but will in turn magnify the losses if the trade does not perform as expected.