Best bet is to leave short-term trading alone

It's very easy to become fascinated by constantly-moving markets. Whether it's commodities, forex or equities you're interested in, it's tempting to become hooked by the second-by-second action of global indices.

When trading, the shorter the time frame you watch, the more randomised the outcome becomes.

Remember, short-term trading is nearly impossible to get right.

And it costs as much to buy and sell in ten minutes as it does to do so once a year. If you buy and sell all the time you will end up with hundreds of commission fee bills in a year, compared to the single bill the person buying and selling once annually receives.

People with hundreds of broker bills will clearly face a harder time to make a profit than the person who traded only once. In fact, you might need to be a genius to pay for 200 commissions in a year; whilst the guy trading once only needs to be on the right side of a 50/50 gamble.

It is just far easier to make money with a long-term investment strategy, rather than by trading short-term. Playing the markets this way might be less fun but what you have to remember is that ‘fun' almost always comes at a price.

Entertainment costs

A key idea to keep in mind when investing is that the market pays you to invest. So gains you make are, in effect, payment for risking your money and financing business. This payment can come in many forms, however, including payment in kind. This might sound odd, but ‘fun' in the markets is a form of entertainment. And we all know entertainment costs.

The fun of short-term trading costs because you are prepared to swap money for fun and so are most people — consequentially the market won't pay you for that — instead it will charge you.

Likewise, owning an exciting prestigious stock is likely to cost you. If you want to make the best returns you have to buy stocks no one cares about at the moment and which are boring. These stocks will be cheap but eventually, fashion and trends will turn and make them popular again. You will then profit.

So, the basic truth to money-making in the market is to ‘go long', buy boring stocks and sell them when people have decided they are exciting.

This means buying when there are only other people selling and, conversely, selling when other people are buying; it's a hard thing to do emotionally.

As 2012 begins, the world couldn't be in a sadder, more bearish place. Every-one is predicting much worse to come all around the world.

Germany, France and Italy's markets crashed in 2011. The US and UK markets didn't. The FTSE and Dow teetered and tottered but didn't fold.

In 2012 they likely will. Maybe it will be in April/May when giant developing world countries bloated with western currency put on their hedges and readjust their stashes of cash, or maybe it will just kick off randomly.

Oil key in Gulf

Meanwhile the key factor for the Gulf will be the price of oil. The updraft for oil will be dollar devaluation, the downdraft, global economic contraction with oil likely gyrating in a $80-$120 range through a volatile trading year.

A good investor will look out for the most boring, ignored opportunities in the market that in two or three years can only be better off. That might not get them admired as a genius today but 2014 and 2015 will come soon enough. That's when they will begin to look pretty smart.

The writer is CEO of ADVFN, a European and South American financial information website, and author of 101 Ways To Pick Stock Market Winners. Opinions expressed are his own and do not reflect those of Gulf News.