Spend enough time studying the market, and you will realize
the market has a mind of its own...... When your stock tanks
on good news, but goes up on bad news. When analysts
recommend your stock as a buy, and the stock takes an
immediate dive. When the CEO publicly says all is great, and
a month later all is terrible, you realize things are not
what they seem. It takes many years to deprogram your mind
from the constant barrage of Wall Street's misguided
expertise that on the surface seemed logical, but works
against you in real trading. If you want to be successful,
you too have to deprogram your mind. Sounds crazy, but true!
ANALYSTS RECOMMENDATIONS. Why do analysts issue buy
recommendations on stocks when they're at an all time high,
and sell recommendations on stocks at all time low? Brokers,
investment advisors, mutual funds, etc, are all part of the
money machine. Your broker has little knowledge and just
passes along the buy and sell orders he gets from the top.
Your investment advisor which you hired to guide and protect
you, gets a commission from the mutual fund he puts you
into. Need I say more?
REALITY CHECK - Stocks rarely crash for no reason, and no
message board uproar will change the fact that you may be
missing some key vital information soon to be known. The
numbers never lie, and if your stock crashed, it probably
happened for a very good reason. It's a strong bet, that
following a false rebound the stock will fall even further,
and neither the shorts, nor the longs win when jumping into
a high volatility situation. The best play is to do nothing
and wait for the volatility to die down.
FINANCIAL DOCUMENTS - Be very skeptical. After all companies
only show us what they want us to see. When do we get the
real data? After the CEO and his buddies all sold their
shares.
STOP LOSS ORDERS - The market is volatile, but investors
should not use stop loss orders. You either like the stock
because it's a great value and willing to ride the
volatility, or just don't buy it. The original idea was to
protect investors from losing money to volatile investments.
Sounds reasonable, but in reality stop losses have a major
impact on how investors operate. Instead of evaluating
investments based on value, the concept now is, "Let's
just buy it, and if it falls I will just lose 10% as my stop
loss gets hit." The problem with this kind of thinking is
that instead of accumulating winners, you are creating a
system biased toward accumulating losses.
SCALING IN - The number one mistake among investors is not
picking the wrong stock, it's not scaling in properly. I
strongly believe in scaling into a position, buying more as
the stock falls. Most investors make the tragic mistake of
putting too much money and energy into their first buy,
emotionally committing themselves to being right. When
things go wrong and often they do, they are left paralyzed.
SUPPORT - As most investors view it is a fallacy. Support is
only a temporary stop that can be mathematically calculated.
To think that there is such a thing as long term support is
as naive as the belief that a company will always deliver on
its projected earnings. REMEMBER: True bottom in most cases
is a non news event, and is typically mathematical in
nature. By the time the average investor realizes he missed
the bottom it's too late. What happened, what was the news?
There was none, see you next time.
THE URGE TO TRADE - Is strong for most people; they want
constant action. The problem? Great picks don't come up
every day. Idle periods are part of the business. You may be
tempted to take on a lesser trade, only to regret it later.
As a rule, a lesser trade will go against you at the worst
possible time. Finally, when a great pick does come along,
you want to be cash rich, and emotionally clean. The last
thing you need is preoccupation with a deteriorating
position.
THE CROWD - Don't join the crowd, as the crowd is rarely
right. A Message Board is an incubator of emotional
investors focusing on the wrong events and the wrong
consequences. Spend one week listening to 100 would be
experts, and before you know it, you will have lost your own
conviction. Very little valuable information can ever be
gotten on a message board, but you can certainly measure
sentiments.
TAKEOVER - Following weeks of bad news and a depressed stock
price, rumors of an imminent takeover is the next logical
event. Although a takeover is always a possibility, in the
majority of the cases it's just rumors.
LOGIC - If you're losing $$$ on your stock, it simply
means you bought it at the wrong time... "the wrong time"
usually being when everybody else wants it. |
