up home page bottom

Monday, February 11, 2008

Don't believe everything you read

Remember the following quotation, especially the second part if you are trading stocks.

"If you don't read the newspaper, you are uninformed. If you do read the newspaper, you are misinformed."

- Author unknown, commonly attributed to Mark Twain or Thomas Jefferson

When I was a young boy, a cousin challenged me to define the concept of gambling. To me then, gambling involves betting your money to luck, like poker, horses etc. So she forced me to think about other forms of transactions involving money, like playing arcade games. Hey, that's not fair!

There's a story I recently learned where a pastor was asked if trading stocks is gambling. He answered that gambling is when you do so without proper information. What do you think? One thing for sure, when it comes to gambling 50-50, you are on the losing end. Don't agree?

Let's say, you start with $100 for a stock. The stock falls 20% and you get back $80. Next, the stock rises 20%. You get back $96. The stock falls 20% again and you get $76.80. Up 20% and you get $92.16. Continue for 7 more sessions like this, you finish with $75. Therefore, if your average number of gains and losses is the same, and given that the magnitude of gain and loss is the same, you are doomed to lose in the end. What do you think?

Anyway, take note of these charts.

How long does it take you to say the word "recession"?

How deep is the bear cut?

At times like these, it is advisable to keep your cash. Don't jump in and out because of media reports. Cash is king. Sob sob, I wish I had more. Just wait for DJ and Nasdaq composite to fall to 10000 and 2000 levels. Meanwhile, just have a cup of susu kacang and enjoy the following videos. I need to too.