Here is a quote from an online penny stock newsletter I get called "per Spec tives", (email to perspectives@shaw.wave.com for more info).
"Commentary
State of mind can have an important influence on an investor's decision making process. An investor who has an opinion about a stock can often ignore reality and make a bad decision when buying or selling. Remembering that share price is based upon the present value of future earnings expectations, one should never be swayed by the emotion of the market.
Despite this, we constantly see the same mistakes being made, both in
buying bad opportunities or ignoring good ones. Investors who have lost on a stock rarely come back to play that stock again. It is as though they connect the stock with some sort of suffering and believe that owning the stock will inevitably lead to suffering. A company that failed to materialize once before may have a completely new, good opportunity which can take their share price higher. Yet the once bitten shareholder is twice shy, and prefers to leave the stock alone.
In some instances, there is some sense in this since poor management can repeatedly make bad business deals which never materialize. However, in a business like resource exploration, a lot of success can be determined by luck. Simply, when considering any stock, don't put too much emphasis on what has happened in the past as it may cloud your judgement. A stock has no morality.
The ability of the promotion machine to put investors in positive state is another trap that investors fall into. The best promoters are psychological wizards, knowing how to reference positive states and connect those strong feelings of confidence and prosperity to their own stocks. Smooth talking and the ability to piece together an exciting story combine to create an optimism that makes people buy a stock. When one is aware of how the stories are written to manipulate the investor, it become easy to spot.
However, many investors fall into the trap and buy the dream. With the
dream comes illusions that the fundamentals of the company can not live up to. Now, the dream can take a stock a long ways up. But the sad thing is, those who dream often don't wake up in time and end up holding almost worthless paper when reality sets in.
So many of the best promoters and stock traders have backgrounds in
psychology. They are able to recognize and understand the reasons why
stocks are under or over valued and take advantage in this moment of market inefficiency. Understanding the power of the mind to change perceptions is an important step in becoming a good stock trader.
Enough Said"
I thought this was applicabel here.
Larry |
