Imagine that you are driving your car at 100 mph in a 50 mph zone. Will you ever blink? You'll be extra alert and you'll never take your eye out of the road.
Well, you should do the same if you are a short term investor. You should never take your eye off the market. There may be golden opportunities which may not last long. You should act immediately to grab the opportunity. For example, my stocks gained about 8% and came down to 1% gain on the same day. If I was a pro, I would have made use of the opportunity. I've seen Ericsson (ERIC) losing its market value by about 25% in less than 2 weeks - when the company disappointed the investors with its 3rd quarter results. What would happen if you are holding ERIC's stocks. Can you afford to loose 25% in two weeks?
Saturday, January 05, 2008
Make informed and not sentimental decisions
How many of you track the market on a daily basis? Do you do your homework before buying or selling stocks? Do you just follow your intuition? Well, intuitions may occasionally help out but not always.
I was one of the few fortunate employees who got pre-IPO stocks from HCL in 1998. At that time, I didn't have any idea about what stocks mean. My colleagues told that "when the company goes public, you can sell them and make lots of money !" :) For quite sometime, I didn't know why the stock price goes up and why it comes down. There were instances when the stock price went down even when the Indian market/economy was good, and even when the company made some top tier customer announcements. Later, I understood that the stock follows NASDAQ's performance. Since HCL is an offshore services company, it is too dependent on the economy of the U.S than the economy of India.
You should keep a close eye on the performance of the companies and the corresponding market sectors. Do not give in for the short term market fluctuations. I've seen investors who get worried unnecessarily and dump all their stocks when there is a bad news. They make purchases when the market is good. Do not just make sentimental decisions.
Robert Kiyosaki says "You make your profit when you buy". It is very true. If you make your "buy"s when the market shows GREEN and sell your stocks when the market is in RED, you won't make a lot of money. Reverse your trading process. Buy it when the market is in RED and sell it when the market is in GREEN. Without risk there is no reward. Understand why the market is in GREEN and why the market is in RED. Make informed decisions.
I was one of the few fortunate employees who got pre-IPO stocks from HCL in 1998. At that time, I didn't have any idea about what stocks mean. My colleagues told that "when the company goes public, you can sell them and make lots of money !" :) For quite sometime, I didn't know why the stock price goes up and why it comes down. There were instances when the stock price went down even when the Indian market/economy was good, and even when the company made some top tier customer announcements. Later, I understood that the stock follows NASDAQ's performance. Since HCL is an offshore services company, it is too dependent on the economy of the U.S than the economy of India.
You should keep a close eye on the performance of the companies and the corresponding market sectors. Do not give in for the short term market fluctuations. I've seen investors who get worried unnecessarily and dump all their stocks when there is a bad news. They make purchases when the market is good. Do not just make sentimental decisions.
Robert Kiyosaki says "You make your profit when you buy". It is very true. If you make your "buy"s when the market shows GREEN and sell your stocks when the market is in RED, you won't make a lot of money. Reverse your trading process. Buy it when the market is in RED and sell it when the market is in GREEN. Without risk there is no reward. Understand why the market is in GREEN and why the market is in RED. Make informed decisions.
Economy is a juggernaut
The stock market is driven by economy. Investors get happier when the economy looks good and get worried when the outlook for economy is not good. Often, investors overreact for the good/bad signs.
If you have invested money in stocks, you should carefully watch out for the indicators of the economy - like consumer spending, housing market, unemployment rate, jobs growth, exports/imports etc., You should also time your trades (buy/sell) accordingly. Do not ever make a buying or selling decision without even monitoring the economy indicators.
If you have invested money in stocks, you should carefully watch out for the indicators of the economy - like consumer spending, housing market, unemployment rate, jobs growth, exports/imports etc., You should also time your trades (buy/sell) accordingly. Do not ever make a buying or selling decision without even monitoring the economy indicators.
Make hay when the sun shines
This is an old saying but holds good even for stocks trading. I had completed building my portfolio in November with the stocks from NTGR, BRCM, AAPL and ATHR.
The market was very optimistic before the Fed's rate cut in December. My portfolio showed an 8% ($350) increase in the market value. I was waiting to sell them all, right after the rate cut - hoping that it would shoot up even higher. Some of the stocks in my portfolio crossed the price targets that I had for them. But, I was greedy and wanted to wait for more time.
The Fed announced a quarter point rate cut instead of a half point rate cut expected by the wall street. Wall street became very unhappy and there was a huge sell-off right after the Fed's announcement. I saw the stocks grow by 8% and fall to 1% on the same day. I missed the golden opportunity to make money.
I have been waiting for about a month since then and the stocks never reached that pinnacle.
The lesson here is "Sell the stocks when your target is reached. Do not wait for the stocks to go up even higher"
The market was very optimistic before the Fed's rate cut in December. My portfolio showed an 8% ($350) increase in the market value. I was waiting to sell them all, right after the rate cut - hoping that it would shoot up even higher. Some of the stocks in my portfolio crossed the price targets that I had for them. But, I was greedy and wanted to wait for more time.
The Fed announced a quarter point rate cut instead of a half point rate cut expected by the wall street. Wall street became very unhappy and there was a huge sell-off right after the Fed's announcement. I saw the stocks grow by 8% and fall to 1% on the same day. I missed the golden opportunity to make money.
I have been waiting for about a month since then and the stocks never reached that pinnacle.
The lesson here is "Sell the stocks when your target is reached. Do not wait for the stocks to go up even higher"
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