To: Ga Bard who wrote (377 ) 9/3/1999 10:31:00 AM From: Ga Bard Read Replies (1) | Respond to
This post is dedicated to the emotional side that P&D artist use and S&D liars use. I developed my system based on the Stock Detective's 7 points which they feel will assist others to designing a principal strategy for investing without emotions.The same logical, deliberate steps one might take to overcome the fear of flying may be applied to overcome investment emotions. Some suggestions:Do your homework. Learn so much about a company and its industry that the daily jiggles of its stock don't bother you. Try not to react to every price movement. If you tie your moods to the tape, you're heading for trouble. techstocks.com Check the volatility of a stock before you buy it. By knowing the normal price swings of a stock, you will be alert to abnormal fluctuations that may signal that something is wrong. Write down your reasons for buying a stock. Every time the share price drops, go back to your list. If there is an important change, sell. If nothing has changed, hold - perhaps even buy more. Winners need patience. Stay focused on your reasons for purchasing the stock in the first place, and stay with it as long as those reasons remain valid. Invest in different types of securities to diversify your risk. Even Peter Lynch, one of the greatest investors of our era, wrote in his book One Up On Wall Street: "If six out of 10 of my stocks perform as expected, then I'm thankful." No matter what you do, you'll always have a few losers. If you make the mistake of committing a majority of your capital to any one stock, you will feel elated as long as it is soaring in a bull market. But let the bear start to growl, and you will spend sleepless nights worrying about getting wiped out. These kinds of emotional traumas are what lead to selling out at a low price. Develop a philosophy of selling, and stick to it. Whether you decide to bail out if you consider the price-earnings ratio too high or when your shares have made an arbitrary price gain, don't budge from your plan. Setting up these kinds of quantitative criteria brings discipline to your investing, and can provide considerable help in divorcing yourself from your emotions. The investor who continually changes his or her philosophy or jumps on every rumor and hot tip is an emotional investor - and almost always a loser. techstocks.com Don't have profit paralysis. Buying is fun and easy; selling can be excruciating. Many people are paralyzed by the fear that if they sell, the stock will go up without them. But if you cannot bring yourself to sell, you may never take a profit at all. If it is just too anguishing to make a sell decision on your own, put in a stop-loss order at a price you don't wish your holding to drop below. Message 8003018 Become the predator, not the prey. The price of a stock - even the market as a whole - simply reflects the daily supply and demand for stocks and, in turn, thousands of investors' emotions. Look for those times where other investors' emotions are so low, they're going off the charts. If the company's fundamentals haven't changed, these stocks may represent good values. By the same token, if you're lucky enough to own a stock that has soared to unsustainable heights, sell into that enthusiasm. The stock market is really a mental game - where more often than not, perception equals reality. Individual stock prices, even the broader market, often bear little relationship to fundamentals. The majority of people in the markets react to their emotions - fear, greed, elation, depression - and usually at the wrong times
