Several days ago I chanced upon an article on a evening Chinese tabloid that an undergrad lost $700,000 in the stock market. His father has to give up his entire savings of $300,000 to help him pay his debts, and his own girlfriend left him, because she could take it no more. She had helped him pay for his losses with her credit cards until all of them hit their respective limits.
On discussing the plight of this poor sod with some friends, we discussed whether it is now a good time to start ‘investing’ again after the recent few ‘corrections’. None of us are investment or trading gurus, and in the discussion, we came up with some of these…
- There is NEVER a hurry to buy.
The reason is very simple. Just like you buy things in a normal market, when you have the money, you wait for the best bargain. Don’t let someone tell you that the price can’t be lower and this is the best time to buy. There will be other windows of opportunity, and it is best to just sit tight, and not rush in blindly.
And if someone tells you to buy a stock now because ‘sure earn’, just tell him to sell everything he has – his house, car, wife and children, and whatever – quit his job, and borrow tons of money from the loan shark and bet his entire life on it. Let him prove his point with his own action, or else just tell him to go fxxk himself.
- There is only a hurry to sell. The reasons are:
The stock price has hit your take profit level: DON’T BE GREEDY. Take profit and don’t hold back and hope for it to go up another 50%. Don’t be concerned about the possible ‘gains’, but rather, be wary of the fact that the stock price can drop below you take profit level and then never recover from there. Remember, money is only real when it sits in your pocket, not when it’s just a fluctuating figure on your spreadsheet.
The stock price has hit your ‘stop loss’ level: BE DISCIPLINED. Give it up when you know for you have made a bad decision. One who fights and runs away, may live to fight another day.
Losing badly on a stock you have no intention / no money to pick up: Don’t hold on until the last day – before the exchange initiate a force sell – to liquidate your position when this happens. If you believe in luck, then try 4D or TOTO, not the stock market.
Above which, there must be a reason for the auto-sell feature when you hit a margin call in margin trading – i.e. the broker didn’t like your risk exposure and he did the most PRUDENT thing – even if you didn’t like it – to cut loss and run.
- Don’t take ‘tips’ on what to buy too seriously.
As I have said before, no one can guarantee 100% that a stock will go up. Above which, you also don’t know how long the so-called ‘tip’ has been in circulation, or how many people have already heard about it.
The longer it has been in circulation, and the more people have heard about it, the less valuable such a tip is. You do not need an explanation to understand a tip heard at 9:30am is worth donuts when you are told only at 4:30pm, or if you are the 100,000th Ah Beng to hear about it.
Above which, recommendations from analysts to buy, may or may not necessarily benefit a small investor like you. Remember the analyst works for his employer – be it the bank or a brokerage – and he doesn’t work for you. It is simply common sense to assume, that the analyst who wrote that analysis has the interest of his employer at heart, and not yours since you are not writing his paycheck. And in fact, you might be the one taking the losses to make up for the profits of his employer to pay his salary.
If you still don’t get it, then refer to point 1: there is no hurry to buy!
- Take ‘expert comments’ with a pinch of salt.
E.g. #1: Alan Green-sperm says the economy may go into recession, but Barnie – or the Monkey Mentor – says the economy will remain rosy;
E.g. #2: Star Analyst A from ‘Giant Brokerage’ says this stock is a piece of shit because the company’s turnover is high but profits is crap while Great Analyst B from ‘Silly-Bank’ says the same stock is a good buy because it got potential.
So who to believe?
Just remember these are all just opinions and not everyone will share them. How the market will go depends on which side has gotten the most money going for it. For all you know the people with the money to move the market just flipped a coin to decide on which opinion to support and it doesn’t really say who is right anyway!
Simply learn to ‘fade the news’ – i.e. let the elephants end their stampeding before you go the water hole to drink. You might get lucky by rushing in as if there will be no tomorrow, but the regret is only yours when you get stomped into the ground.
- Don’t watch too many counters.
In the wild, predators will observe just a few animals in a herd before they launch an attack. They don’t watch all the 1001 animals in the herd.
Simply put, there are many counters on the stock exchange and if you watch too many of them, the chances are that you will end up making more bad decisions and end up losing in MORE of them than making the right decisions.
Above which, why watch say, the hypothetical stock of Phua Chu Kang Pte Ltd, where no one would care or have any idea what it does, compared to SingTel, or StarHub?
The sheer lack of activity – or liquidity – from Phua Chu Kang Pte Ltd and its slow moving may make you so tired you fall asleep and you end up not making the right decisions at the right time!
Furthermore, a stock you have no idea about its core business or a stock that lacks the interest of the general public will not get very much mention anyway. The general public probably isn’t even interested in how the company is doing. On the other hand, you will know when SingTel or StarHub is making a profit or a loss, or when it is making certain major corporate moves which might impact stock prices. In simpler words, better the devil you know, than the devil you don’t.
These points are definitely not meant as a guideline on how you should trade or invest in the stock market. There are many books out there written by more qualified people to help you with that. (You might also want to read this site for some enlightenment as well.)
While those books won’t make you a millionaire, they would at least prevent you from turning into a bankrupt.
Finally, remember this: There is no easy money in the world, the stock market is not a casino and don’t trade stocks like a gamble. If you want to try your luck and look for easy money, just spend $1 every draw on 4D or TOTO. Your risk and maximum loss will just only be $1.