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Friday, November 16, 2007

Hindsight is 20/20

If I had invested my savings in this stock, I would be a millionaire by now. It started the year at $13 and hit $130 before the market plunge; that means the stock grew by 1000% in less than a year, you kidding me?

Ah-ah, I will chicken out before I even start as a matter of fact. So even if I knew the stock existed, I probably won't bet my ass on it. That's what my friend told me today - hindsight is 20/20. Easy to comment on something that has already passed.

Anyway, 90% of investors get burnt in trading market....which is good news for the other 10%. 90% losers lose their money to the other 10% winners. Nice way to think about the odds, huh? So what are the things to consider when picking a company stock? Here's a probable list:

1. Fundamentals/financial statement
2. Competition
3. Research & Development - market leadership, example, iPhone
4. Management
5. Analyst/ratings
6. Seasonal/Cyclical factors - Cold weather, Airline, Hotel industry
7. Geopolitical - lawsuit, terrorist, supply

It is easy to forget your reasons for buying a stock especially when the market is so volatile and unpredictable, like now. One day they tell you some company good earnings results or speculate further rate cuts. Another day they tell you some financial institution is losing so much money from their exposure to the subprime loans. Well, some analysts are looking at Walmart's good quarterly result as something positive about consumer spending. Good consumer spending means economy is growing. However, it could mean that many people cannot afford to buy expensive stuff already and are now going to Walmart instead.

So, don't get emotional when buying or selling stocks. Yeah, when the market plunges like it did this week, many investors panicked and sold their stocks. You can think of it this way - buy a little at a time so that you don't burden yourself too much emotionally. It's like carrying your books around. You don't want to carry all the books together. Instead, you carry more more books as you go along. Similarly, sell a little at a time. You carry a bucket of water - you want to release the water a little at a time as you go along. You don't want to carry that heavy load everywhere you go. With that, let me state a few sensible rules about trading:

Rule #1: If you don't understand what you are buying, you are destined to fail
Rule #2: From the beginning, never ever use your emotions
Rule #3: If you don't know when to sell, don't buy
Rule #4: There is no such thing as low or high (the share price). What is low to you may be high to me vice versa

Anymore to add?


CY said...

My 2 cents:
Sell when price hits your trailing exit. Do not fall in love with your stocks. Adopt Risk Management.
By the way, I am still seeing Dutch in the Comments Page

Susu Kacang said...

That's sound advice. Are you still seeing Dutch?