Dale;
30% of your holding ins one stock?
For those interested I have copied this from the S3 board which "stocktalk" posted. I really enjoyed this part...
"Internet chat rooms like The Silicon Investor offer a fascinating insight into the irrational emotions of many investors. Woe unto those relatively prudent souls that attempt to deflate the rags-to-riches dreams of these participants with a bit of healthy skepticism:
"Why are you on this thread? Why don't you just slither away?" Or: "What is your real purpose here? Are you a short seller?" Or this rose-colored view: "I've been a shareholder [in XYZ Corp.]for over a year, and I truly believe I will be rewarded... and the world itself will be rewarded from [XYZ's] technology."
These are the words of persons ready, willing and able to lose their shirts. Do they sound like someone you know? Do they sound like you?
Mind Over Money
For Investors, Emotion is Your Enemy
For some people, playing the financial markets is a little like flying. If the flight goes smoothly, you're relaxed enough to calmly munch peanuts and sip soft drinks. But hit turbulence or an air pocket, and it's white knuckles and straight bourbon - or maybe an
airsick bag - the rest of the way. Although the odds are against it, a crash is always in the back of your mind.
Whether playing the markets or flying the friendly skies, you must master your emotions if you are to succeed, not to mention survive.
Internet chat rooms like The Silicon Investor offer a fascinating insight into the irrational emotions of many investors. Woe unto those relatively prudent souls that attempt to deflate the rags-to-riches dreams of these participants with a bit of healthy skepticism:
"Why are you on this thread? Why don't you just slither away?" Or: "What is your real purpose here? Are you a short seller?" Or this rose-colored view: "I've been a shareholder [in XYZ Corp.]for over a year, and I truly believe I will be rewarded... and the world itself will be rewarded from [XYZ's] technology."
These are the words of persons ready, willing and able to lose their shirts. Do they sound like someone you know? Do they sound like you?
THE DUBIOUS ART OF BUYING HIGH AND SELLING LOW
For investors, price is the prime mover of emotions. As long as a stock is going up, its owner feels good. If the stock plunges, however, his mood may sink faster than the stock, causing him to bail out at a low price. If emotions control your investment decisions, you
will consistently buy high and sell low. Everyone knows that stocks fluctuate, yet most of us don't know how to handle these ups and downs. An investor buys a stock at 15, and even though the company has not experienced any important changes, it falls to 10, rallies to 14, drops to 9. After many twists and turns, it climbs back to 15. All too often, the investor's response at this point is to give up, saying, "Whew! I'm even. Now I've got to get rid of it." Very often, when the investor looks back a year later, he discovers to his chagrin that the stock has soared without him. In many investors' minds, there is a
price level above which they will not even consider selling. Below that level, they sell all too readily. Once this "mental stop" is broken, emotions take over. The stockholders are no longer investors; they're pawns in a great stock market psychodrama.
An example of pure emotion at work is the desire to hop on a stock that has soared for several days or weeks. Such a stock is launched with an explosion of volume, rumors and tips. If you're in early, you may make a lot of money, but most people - swept up by an emotional, irrational hope that the shares will somehow defy the laws of gravity for just a little longer - hop on AFTER the big move. The later you climb aboard, the closer you are to the top, and such market missiles usually blow up at the height of expectations.
All of your emotions come to the fore when you are considering selling a stock. There is the fear that if you sell, the stock will soar, and if you don't, it will collapse. Nothing is more difficult than deciding when to sell, but stocks seldom go up forever. Caring too
much for a stock could undo you in the long run. If you can never sell a stock, you are kidding yourself. Don't become emotionally attached to a stock. If you are going to be a successful investor, you must have the discipline to sell when everything looks great, and
when the company president says "business couldn't be better," it probably won't be. When you do unload a stock, you may feel seller's remorse. "Maybe I sold too soon," you say. Every day thereafter, you check the stock's listing in the paper or on the Internet or you call your broker and ask, "By the way, just out of curiosity, how is that
stock I sold doing these days?" And if it has performed well, you may say, "I held the stock 18 months and the minute I sold, it went to the moon!" Once you sell a stock, don't look back in anger if it goes higher, or gloat if it stumbles. Only look back to learn something. Maybe you sold for the wrong reasons.
SEVEN SUGGESTED STEPS TO OVERCOME YOUR
INVESTMENT EMOTIONS
How can you control your emotions? Do what one might do to overcome a fear of
flying. First, read everything available to find
about how planes fly. You'll probably conclude that a big commercial jetliner with big
engines is pretty darn safe. Then, you
might decide to fly only on large commercial planes. No commuters... and definitely no
missiles.
In a similar manner, try studying the nature of the financial markets - how fluctuations are
normal, how supply and demand is like the air that lifts the wings of airplanes. Analyze
the fundamentals of individual companies so thoroughly that you stack the odds in favor
of a smooth flight. 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. 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. 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.
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.
If you can't control your emotional responses, don't play the market - you will probably
lose. But if you're smart enough to realize that, you can still be a successful investor. If
you must, seek out a mutual fund or a trusted money manager to invest for you.
This may not prove as exciting as picking your own stocks, but it may assure you a
good night's sleep. |
