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Strategies & Market Trends : Natural Resource Stocks -- Ignore unavailable to you. Want to Upgrade?

To: wsw1 who wrote (53537)	3/16/2007 9:18:44 AM
From: hubris33	Read Replies (2) \| Respond to of 109009

Billy - IMHO the problem with putting all of one's eggs into one basket is one becomes too emotionally invested in the stock and looses objectivity. One ends up defending a company no matter what happens and looses sight of what is important - making money. Read any of the "Market Wizards" books or any of the books on the psychology of investing and one will quickly learn that emotions have no place in trading nor investing. It is hard to do, since we are human, but once one takes emotions out of the equation their trading and returns will improve. Now I am not a definitive expert on markets, but in my years of watching I have seen patterns like TRE's play out time and time again. Such a pattern sucks in inexperienced market participants, in fact it needs those people to come into the market so that the professional traders have someone to sell their shares to! But such a pattern also has inevitable consequences one ends up lost in emotional investing. You claim to have bought TRE when it was below $1. Best I can tell that means that you owned it prior to June 2005. Therefore it looks like from the period of June 2005 to May 2006, TRE increased a tremendous 900% up to a high of 9.10! TRE and the market provided and 800% profit in 11 short months! Now this is what a pro understands and an amateur investors doesn't: an 800% return in 11 months is a gift from the market and rare. Such a gain is not likely to be repeated in a short period of time. But what happens, is that some who took the big ride up get greedy and think about the price giving them another 800%. As the price starts to fade, they rationalize and justify their position. They get emotionally bound to the stock. Those that bought near the top go into denial and ignore the losses. As the price drops they get uncomfortable, eventually as the price fades the pain increases and finally they sell in disgust. Here is what this looks like in TRE's case. But here is the problem, I don't care what stock it is or what market it is, once one captures a tremendous gain like that it is time to take profits! Those type of meteoric rises rarely sustain themselves and a pull back is inevitable. One who invested in June 2005 had an 800% in their hand and that gain has dwindled to a 400% gain as TRE is range bound near $5. Yeah, one still has a decent gain but where would one be if they had taken profits north of $8 and had invested in MNEAF or AZK? Look here is a chart of another stock that had a similar "rocket ride" up in price, CMM.v. The exact same thing happened here: price went from 0.40 up to 1.89 in 3 short months! Note the increasing volume as the price rises and note how volume starts to fade as the price peaks. What happened here? Investors had a 475% gain in their hands! Investors got greedy looking for even more gains. Again as investors saw the price decline they went into denial, eventually the pain became too much and they sold in disgust. A key difference between CMM and TRE is that CMM does not have a CEO with a personal website where perceptions of the market can be exposed daily. So a key to investing is to learn to see when one has a windfall profit and lock in that profit and not take the ride down. Don't get sucked into emotional investing by the market! H3