Sunday, January 6, 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.

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