There be dragons among the stockmarket's bears and bulls

Who thinks the banks are safe and should not have fallen 27 per cent since April? Who thinks Qantas is a blue-chip stock and should not have fallen 75 per cent? Who thinks QBE, Forge and Matrix are value stocks that will go back up? Who only sells something when it's blatantly obvious that you should, and by the time you do, it's wrong?

Or maybe you are one of those investors who believe you are buying a company, not a share price. That intrinsic value is more important than market sentiment. That faith, duty and loyalty are part of being a shareholder and are more important than whether you make money and have a decent retirement.

Or maybe you are one of that small band of investors who has taken their failure a step further and thinks that all fund managers are overpaid crooks, that fund managers don't deserve their fees, that financial planners do nothing for their money, that brokers only say sell because they want to buy, that everyone in the financial industry is out to get you and that the whole stockmarket is an evil conspiracy of institutions out to rip off poor, honest and innocent citizens like yourself and that it just isn't fair and somebody should pay.

Are you one of those? Are you a victim of the stockmarket?

Well, if any of the above applies to you, it's time to realise that making money is a battle, not a divine right, and that the stockmarket is a battlefield, not a gravy train, and that if you turn up to the fight expecting other people to fight the fight for you, then things are going to happen to you instead of for you.

In the stockmarket, taking money off fools is expected, taking money off innocents is applauded and ruining the lives, retirements, school fees funds and futures of families is an accepted no-recourse "casualty of war".

If I was to ask you for $10,000 to put into a business, what would you say? "Bugger off," most likely. But put the same $10,000 in a stockmarket trading account and incredulously all that prudence goes straight out of the window. I am guilty myself. When buggering about in shares, the whole notion of "money" seems to change $10,000 is nothing to an investor. But take $50 out of that same trader's wallet and he'll defend it with his fists. The difference, of course, is the "clarity of affront". Faced with a thief we know exactly what to do. We would act decisively and with the Lord by our side. But faced with a computer screen and the stockmarket we allow all sorts of fingers in our wallets and strangers in our lives. The markets are a facility for the smart to rummage around in the personal lives of the innocent.

In the Australian stockmarket, every trade is matched. That is to say, for every buyer there's a seller, and for every seller there's a buyer. So for every winner there is a loser. Every dollar someone makes is lost or not gained by someone else.

Seen like that and you begin to realise that trading the stockmarket is a war "you and them". Every other investor is your competitor, and the stockmarket is nothing more than people, people who are anonymous, people who are not like you, people who are under no moral obligation to care. The stockmarket is anyone and everyone, and you are a target for them all.

Yet so many of us go wandering onto the battlefield unarmed and unaware, thinking our mere appearance is enough to make us winners.

Investing is a business and has to be treated as such. When you boot up that trading screen you open the door to your bank account, and the only guardian is you. If the past six years of going nowhere has taught us anything it is that participation alone is not enough. You need to arm yourself. You need trading skills.

Next week we'll look at step one. Stop losses. What are they, and how do you set them.