Did the stock market bottom out? It is a trillion dollar question. The stocks lost nearly 11 trillion in value since October 2007 and lost nearly 2 trillion since the beginning of 2009.
It started like a shower, then became a rain, then became a thunder storm and now it is a hurricane and there is flood everywhere. The March'08 lows (caused by Bears Stearns fallout) were beaten by the July'08 lows (caused by Fannie/Freddie government takeover) which was beaten by the October'08 lows (caused by Lehman fallout) and that was in-turn beaten by the Nov'08 lows (caused by GM/Citi insolvency concerns) . People thought "That was the end of it" and breathed a sigh of relief. Optimism developed when Obama was sworn in. The stocks rose in Jan'09. Everyone thought, they missed the stock market bottom in Nov 21st, 08. Then came the huge blow in Feb'09. The marked tanked another 20% since the new year. It created new bottoms everyday.
There are two sets of people - the optimists and the pessimists. The optimists think that the bottom is reached and jump-in to see themselves in a new bottom. The pessimists wait on the side lines with their money to jump-in when the 'real' bottom is reached. But, the truth is, nobody knows what the 'real' bottom is. The pessimists are going to wait for ever. So, who wins - the optimists or the pessimists? The real winner is decided by time.
Those who are still trying to bottom pick - Good luck !
Showing posts with label Stock trading lessons. Show all posts
Showing posts with label Stock trading lessons. Show all posts
Saturday, March 7, 2009
Monday, February 9, 2009
Investment - Stocks or Mutual Funds?
Many a times, you may have this question - should I buy Mutual Funds or Stocks? Well, the answer depends upon what kind of person you are. If you are a trader who keeps track of the stock, the company, the board, the products/solutions/services etc., & if you are ready to take unprecedented amount of risks, you are free to invest in stocks. But, if you are lazy to keep track of these nitty gritty details on a day2day basis, you should consider Mutual Funds.
Playing with stocks is like flying on a jet. It can go UP really fast & it can come DOWN really fast. However, investing in Mutual funds is like driving a car within speed limits. It will be slow (when compared to the jet). But, the risks are minimal.
Have you heard the story of Lehman Brothers? Think about the people who invested their life savings on Lehman stocks. Note: Mutual Funds are not immune to the UPs/DOWNs of the stock market. However, the ride is not rugged. You should practise the same amount of discipline, and thoroughness when investing in Mutual funds also. If you are investing for the long term/retirement, you should definitely consider investing in Mutual Funds.
Playing with stocks is like flying on a jet. It can go UP really fast & it can come DOWN really fast. However, investing in Mutual funds is like driving a car within speed limits. It will be slow (when compared to the jet). But, the risks are minimal.
Have you heard the story of Lehman Brothers? Think about the people who invested their life savings on Lehman stocks. Note: Mutual Funds are not immune to the UPs/DOWNs of the stock market. However, the ride is not rugged. You should practise the same amount of discipline, and thoroughness when investing in Mutual funds also. If you are investing for the long term/retirement, you should definitely consider investing in Mutual Funds.
Thursday, January 22, 2009
Buy on the rumor, Sell on the news
Market always reacts to 'surprises'. Imagine it is Feb 14th, the Valentine's day. You come home in the evening. You bring your wife a beautiful diamond ring and surprise her. Your wife gets so excited and she expresses her happiness and cheer to you. The same thing happens in the stock market. When investors get 'positively' surprised, they send the stock market UP.
Let us see what happens in the following scenario. You tell your wife that you'll bring her a beautiful diamond ring in the evening. But, you come home late, and that too empty handed. What will be your wife's reaction? She'll be very disappointed and you may not even get your dinner. The same thing happens in the stock market too. When investors get 'negatively' surprised, they dump the stocks and send the stock market DOWN.
When a 'rumor' becomes 'news', the element of 'surprise' is gone. Investors buy stocks when there is still 'surprise'. They dump stocks when the 'surprise' is gone i.e., when a 'rumor' becomes news (or, when they are 'negatively surprised'). If you want to really ride with the wave instead of riding against the wave, "Buy on the rumor, Sell on the news".
Let us see what happens in the following scenario. You tell your wife that you'll bring her a beautiful diamond ring in the evening. But, you come home late, and that too empty handed. What will be your wife's reaction? She'll be very disappointed and you may not even get your dinner. The same thing happens in the stock market too. When investors get 'negatively' surprised, they dump the stocks and send the stock market DOWN.
When a 'rumor' becomes 'news', the element of 'surprise' is gone. Investors buy stocks when there is still 'surprise'. They dump stocks when the 'surprise' is gone i.e., when a 'rumor' becomes news (or, when they are 'negatively surprised'). If you want to really ride with the wave instead of riding against the wave, "Buy on the rumor, Sell on the news".
Stock Analysts are JOKERS
Zig Ziglar, the powerful motivational speaker says "Media has successfully predicted 36 of the last 3 recessions". If analysts are smart enough to predict the market, they'll be making BILLIONS every year and enjoying their time in Bahamas or Jamaica. But the reality is, these analysts work for pay checks.
For every analyst who predicts that a stock will OUTPERFORM, there will be another analyst who'll say that the stock will UNDERPERFORM. Whenever an analyst increases the stock rating, the stock goes UP and whenever an analyst reduces the stock rating, the stock comes DOWN. Doesn't this make the stock movement so PREDICTABLE? If 'something' is very PREDICTABLE, it is easy to 'control' or 'manipulate' that. If something can be easily manipulated, what will smart minds do? They'll just MANIPULATE them. Stocks are not an exception. Stocks are MANIPULATED.
There is also one more reason why you shouldn't blindly follow the analyst guidance. Most of the firms, for which these analysts work-for, run some hedge funds or investment funds. So, there is lot of 'selfish' motive for the analysts to give a 'guidance' that is in favor of their investment portfolio. Novice investors like you and me get wiped-off of our savings.
How do you know that the analysts who gives guidance for a stock is 'smart' enough? You don't get to see or interact with them. You don't know about their skills or academic performance. Who knows, the analyst might have even 'failed' in his/her 'financial valuations' papers. There is no way to judge the performance of these analysts. Then, how can we trust these JOKERS?
Listen to the analyts. But don't follow them or their guidance. Do your own research and use your judgment. Don't ever buy a stock just because some XYZ analyst recommends it.
For every analyst who predicts that a stock will OUTPERFORM, there will be another analyst who'll say that the stock will UNDERPERFORM. Whenever an analyst increases the stock rating, the stock goes UP and whenever an analyst reduces the stock rating, the stock comes DOWN. Doesn't this make the stock movement so PREDICTABLE? If 'something' is very PREDICTABLE, it is easy to 'control' or 'manipulate' that. If something can be easily manipulated, what will smart minds do? They'll just MANIPULATE them. Stocks are not an exception. Stocks are MANIPULATED.
There is also one more reason why you shouldn't blindly follow the analyst guidance. Most of the firms, for which these analysts work-for, run some hedge funds or investment funds. So, there is lot of 'selfish' motive for the analysts to give a 'guidance' that is in favor of their investment portfolio. Novice investors like you and me get wiped-off of our savings.
How do you know that the analysts who gives guidance for a stock is 'smart' enough? You don't get to see or interact with them. You don't know about their skills or academic performance. Who knows, the analyst might have even 'failed' in his/her 'financial valuations' papers. There is no way to judge the performance of these analysts. Then, how can we trust these JOKERS?
Listen to the analyts. But don't follow them or their guidance. Do your own research and use your judgment. Don't ever buy a stock just because some XYZ analyst recommends it.
Can we really make money in stocks?
Can we really make money in stocks? The answer is YES. At least, thats what the whole world believes. Otherwise, there won't be so much fuzz about stocks and stock market. If you haven't really made any money in stocks, there could be only one reason for that - "You haven't fully understood the stock market and its dynamics".
Have you always felt that you are in the wrong side of the COIN - when you bet that the market will go up, the market really goes down; when you bet that the market will come down, the market really goes up. Well, you aren't alone. Many of the investors feel the same way. But, don't feel dejected. Stock market doesn't always go in one direction. Whatever goes DOWN, comes UP and whatever goes UP comes DOWN. You have to just identify them before the rest of the market identifies it :)
If you make smart decisions and show lots of discipline, you'll definitely make lots of money in the long run.
Have you always felt that you are in the wrong side of the COIN - when you bet that the market will go up, the market really goes down; when you bet that the market will come down, the market really goes up. Well, you aren't alone. Many of the investors feel the same way. But, don't feel dejected. Stock market doesn't always go in one direction. Whatever goes DOWN, comes UP and whatever goes UP comes DOWN. You have to just identify them before the rest of the market identifies it :)
If you make smart decisions and show lots of discipline, you'll definitely make lots of money in the long run.
Cash is Trash or Cash is King ?!
Cash is Trash or Cash is King ?! Well, it depends on whether bulls rule the market or bears rule the market.
When the market goes up everyday in high gear, people say "Cash is Trash". Cash does not get inflation adjusted. So, owning a stock is far better than just stacking cash under your pillows.
When market continuously falls down like a knife, people say "Cash is King". Investors normally come to this mind set only after loosing all the cash they had in hand. Initially, when the stocks fall down by a few percentage points, investors use all their available cash to 'average down'. However, once they run out of cash and when the market continues to drop down, they start to realize the importance of "Cash".
So, what do we conclude. Is it good to hold "Cash"? The answer is, "Yes" & "No". The money that you would need in the next 5 years should not be in the stock market. However, in the long run, stocks prove to be appreciating in value and also get inflation adjusted. So, it is wise to invest the 'long term' money in the stock market on 'healthy' stocks.
When the market goes up everyday in high gear, people say "Cash is Trash". Cash does not get inflation adjusted. So, owning a stock is far better than just stacking cash under your pillows.
When market continuously falls down like a knife, people say "Cash is King". Investors normally come to this mind set only after loosing all the cash they had in hand. Initially, when the stocks fall down by a few percentage points, investors use all their available cash to 'average down'. However, once they run out of cash and when the market continues to drop down, they start to realize the importance of "Cash".
So, what do we conclude. Is it good to hold "Cash"? The answer is, "Yes" & "No". The money that you would need in the next 5 years should not be in the stock market. However, in the long run, stocks prove to be appreciating in value and also get inflation adjusted. So, it is wise to invest the 'long term' money in the stock market on 'healthy' stocks.
Tuesday, October 28, 2008
What goes up, comes down & What comes down, goes up
You throw a rubber ball up in the air. The ball goes upto a certain height and comes down again. You throw the same rubber ball down on the ground. The ball touches the ground and bounces back up again. You can see this pattern in stocks also.
When AAPL was trading at $90 in 2006, many felt that it was overvalued. But, the stock kept going up & up until it reached $200 in late 2007. In Dec 2007, many felt that AAPL can easily go to $250 or $300. People strongly believed that buying at $200 is a bargain. Analysts were throwing crazy numbers. But, what happened in 2008?
After the financial meltdown, most of the stocks lost their value. AAPL came back to $90 again in 2008. AAPL nearly lost 60% of its value. It is hard to believe that AAPL, the dream stock of many hedge funds, is trading at $90. Now in 2008, many are betting that it would go down even further because of the poor economy.
There is no 'perfect' time to buy a stock. Any stock that goes up, will come down again. Any stock that goes down, will come back up again. (Ofcourze, the company has to stick around, till the recovery ! :)). If stocks were uni-directional, then nobody would be trading stocks. Don't make emotional decisions when you buy or sell stocks. Develop a plan and stick to it. Don't be greedy or over-optimistic.
When AAPL was trading at $90 in 2006, many felt that it was overvalued. But, the stock kept going up & up until it reached $200 in late 2007. In Dec 2007, many felt that AAPL can easily go to $250 or $300. People strongly believed that buying at $200 is a bargain. Analysts were throwing crazy numbers. But, what happened in 2008?
After the financial meltdown, most of the stocks lost their value. AAPL came back to $90 again in 2008. AAPL nearly lost 60% of its value. It is hard to believe that AAPL, the dream stock of many hedge funds, is trading at $90. Now in 2008, many are betting that it would go down even further because of the poor economy.
There is no 'perfect' time to buy a stock. Any stock that goes up, will come down again. Any stock that goes down, will come back up again. (Ofcourze, the company has to stick around, till the recovery ! :)). If stocks were uni-directional, then nobody would be trading stocks. Don't make emotional decisions when you buy or sell stocks. Develop a plan and stick to it. Don't be greedy or over-optimistic.
Do you have a diversified portfolio?
Have you worked in a team? A team may contain people with different set of skills. Each one of them bring a unique value to the effective functioning of the team. Same goes with stocks. You need to build a portfolio that has a "mix" of stocks from different market segments. That way, if one of those segments is adversely affected, the other stocks can still continue to do good. Portfolio is all about minimizing risk and diversification. During tough times, diversification really helps.
Let us take for example you've invested all your money in Semiconductor business. If a market analyst predicts that the "semiconductor market" is going to be really dull for the next few years, your investment would loose its value all of a sudden. On the contrary, if you have built a diversified portfolio spanning tech, energy, finance, commodities etc., your investment value would not be eroded.
Building a diversified portfolio is like constructing multiple strong pillars/columns for a multi-storied building. Even if one of them goes bad, the others would be holding the structure. It would give you enough time to repair or replace the bad columns.
Let us take for example you've invested all your money in Semiconductor business. If a market analyst predicts that the "semiconductor market" is going to be really dull for the next few years, your investment would loose its value all of a sudden. On the contrary, if you have built a diversified portfolio spanning tech, energy, finance, commodities etc., your investment value would not be eroded.
Building a diversified portfolio is like constructing multiple strong pillars/columns for a multi-storied building. Even if one of them goes bad, the others would be holding the structure. It would give you enough time to repair or replace the bad columns.
Buy/Sell Stocks in increments
Do you think you are good at predicting the market? If you really can, you may not be reading this blog. You may be spending your time in the beaches of Hawaii, giving yourself an early retirement. Yes. You should be a billionaire by now, if you can really predict the market peaks & bottoms. But, the reality is ... most of us are not good at predicting the market. So, what should you do if you are an investor? When should you really invest? What is the strategy you should follow?
Say, for example, you have $5000 to invest in stocks. You wake up one fine morning and dump all the money into a stock. The next day, the stock value drops by 10%, the following day it drops by another 10%... what would you do? You keep hitting the "Refresh" button several hundred times a day for the price to come up.
Let me propose a strategy for you. This has worked for me. If you have $5000 to invest, buy stocks for $1000. Wait for a week or a month (depends upon whether you are a long term or a short term investor). See if the stock continues to hold its value. You can throw another $1000 into the same stock after some time. If the stock keeps going up, it is well and good. If the stock lost some value, it is a nice opportunity for you to average out. The drawbacks of this approach is
(a) you may have to pay the broker for each trade that you make. However, the price that you pay is very very less when compared to the loss that you would've encountered if the stock were to drop 5 or 10% of its value.
(b) occassionally, you may have to miss some opportunities. Especially, when a stock goes up by 10% or so every day. But, such opportunities show up only very rarely. You shouldn't be too greedy :)
The same strategy would also work when selling stocks. Sell in portions instead of selling all of them in one go.
Always, Buy or Sell in increments.
Say, for example, you have $5000 to invest in stocks. You wake up one fine morning and dump all the money into a stock. The next day, the stock value drops by 10%, the following day it drops by another 10%... what would you do? You keep hitting the "Refresh" button several hundred times a day for the price to come up.
Let me propose a strategy for you. This has worked for me. If you have $5000 to invest, buy stocks for $1000. Wait for a week or a month (depends upon whether you are a long term or a short term investor). See if the stock continues to hold its value. You can throw another $1000 into the same stock after some time. If the stock keeps going up, it is well and good. If the stock lost some value, it is a nice opportunity for you to average out. The drawbacks of this approach is
(a) you may have to pay the broker for each trade that you make. However, the price that you pay is very very less when compared to the loss that you would've encountered if the stock were to drop 5 or 10% of its value.
(b) occassionally, you may have to miss some opportunities. Especially, when a stock goes up by 10% or so every day. But, such opportunities show up only very rarely. You shouldn't be too greedy :)
The same strategy would also work when selling stocks. Sell in portions instead of selling all of them in one go.
Always, Buy or Sell in increments.
Monday, October 20, 2008
Are you a trader (or) investor?
There are lots of differences between 'trading' & 'investing' in stocks. Traders (typically short-term focused) time the market, they act based on news, they don't look at fundamentals of a company. All they look for, is a quick entry and exit. They try to ride through the waves. Investors look at long-term fundamentals of the company. An investor has lots of patience. An investor is more disciplined than a trader. How many 'traders' become famous in history? But, Warren Buffet, a veteran investor is continuing to make his mark.
Are you a trader (or) a investor?
Monday, August 4, 2008
Stocks may not be the right "investment" for everyone
Housing crisis, sub-prime mortgages and the slumping economy made the stocks of financial institutions to reach their all time lows. Stocks that were trading in 100s are trading in pennies. Stocks that took 5 - 10 years to reach their all time highs came down to their all time lows in 5 - 10 months. What if you had invested 'just' in financial stocks. Many people have lost their retirement savings because of this crisis. What if you were to be one of them?
Diversification is the key. Maintain a diversified portfolio that spans across different market segments, and industries. Better yet, choose other investments like mutual funds, gold, bonds etc., Let us say, you planted a tree, programmed sprinklers and forgot about it! What is the probability that the tree will grow as you had wished? What if the sprinklers didn't work, what if the wind uprooted the plant, what if some animal grazed over it, what if ... what if... ? Similarly, there are thousand factors that can influence the value of your investment. Monitor your portfolio regularly. Do adjustments based on the market conditions.
Stocks may not be the right "investment" if you don't understand its dynamics and if you don't have time to 'monitor' them regularly.
Diversification is the key. Maintain a diversified portfolio that spans across different market segments, and industries. Better yet, choose other investments like mutual funds, gold, bonds etc., Let us say, you planted a tree, programmed sprinklers and forgot about it! What is the probability that the tree will grow as you had wished? What if the sprinklers didn't work, what if the wind uprooted the plant, what if some animal grazed over it, what if ... what if... ? Similarly, there are thousand factors that can influence the value of your investment. Monitor your portfolio regularly. Do adjustments based on the market conditions.
Stocks may not be the right "investment" if you don't understand its dynamics and if you don't have time to 'monitor' them regularly.
Sunday, April 20, 2008
Don't wanna fail? Stock market is not your playground
I'm not a sport fanatic. However, I understand that in any game there is an equal chance to failure and success. If you can't appreciate this, stock market is not your play ground.
I never lost any money since I started earning in 1998. I never made any mistake on financial investments. Well, this is not true anymore. I did some investment mistakes when selecting stocks. My losses piled up when I failed to admit my failure. I saw the value of my portfolio going down everyday like water falling from the mountain top. I do not want to sell the stocks for a loss. I held them until I lost up to 30% of my investment. Thats when, I realized that I should let go my ego and admit my failure. Since I had started small with stocks, the mistake didn't hurt me a lot. However, it is a lesson well learned.
If you don't want to loose, stock market is not your play ground. For every stock that you buy there is a 50% chance of success and a 50% chance of failure. By doing your home work, you can maximize the probability of success. But there are always factors that are beyond your control, that may influence your portfolio. Don't wait long enough to admit your failure. Being honest can punish you in the short term but will reward you in the long run.
I never lost any money since I started earning in 1998. I never made any mistake on financial investments. Well, this is not true anymore. I did some investment mistakes when selecting stocks. My losses piled up when I failed to admit my failure. I saw the value of my portfolio going down everyday like water falling from the mountain top. I do not want to sell the stocks for a loss. I held them until I lost up to 30% of my investment. Thats when, I realized that I should let go my ego and admit my failure. Since I had started small with stocks, the mistake didn't hurt me a lot. However, it is a lesson well learned.
If you don't want to loose, stock market is not your play ground. For every stock that you buy there is a 50% chance of success and a 50% chance of failure. By doing your home work, you can maximize the probability of success. But there are always factors that are beyond your control, that may influence your portfolio. Don't wait long enough to admit your failure. Being honest can punish you in the short term but will reward you in the long run.
No Risk No Reward
Did Christopher Columbus discover America by sitting on the couch? No. He took enormous risk by sailing through rough seas with his fellow men. Can we get valuable gold and diamond without miners risking their lives? Without risks, there is no reward. This is true for stock trading as well.
I bought a few Google stocks recently before they announced their 2008 Q1 results. The whole market was pessimistic and were betting that Google will loose. A report from Comscore indicating that the paid ad-clicks decreased in March added fuel to the fire. I took the risk of buying Google stocks at a cheap price. Google gave a pleasant surprise to everyone by reporting a 30% growth for the 2008 Q1 quarter. The stocks increased by about 20% in a single day. Of course, I didn't wait enough to maximize my profit. However, it helped me to make one of my best profits.
No Risk, No Reward. But do not take blind risks. Make calculated risks.
I bought a few Google stocks recently before they announced their 2008 Q1 results. The whole market was pessimistic and were betting that Google will loose. A report from Comscore indicating that the paid ad-clicks decreased in March added fuel to the fire. I took the risk of buying Google stocks at a cheap price. Google gave a pleasant surprise to everyone by reporting a 30% growth for the 2008 Q1 quarter. The stocks increased by about 20% in a single day. Of course, I didn't wait enough to maximize my profit. However, it helped me to make one of my best profits.
No Risk, No Reward. But do not take blind risks. Make calculated risks.
Thursday, April 10, 2008
Do you look for stock trends?
Have you ever got cold? I'm sure you would have got one. Did you ever notice how it all started? It would've started with a sore throat. The next day you would've sneezed a few times. The third day, you would've got some running nose. If it is a severe cold, you may also get some coughs. If it is a very very severe cold, some may also get a little fever. You would know at least 3 or 4 days in advance, that you are going to get cold. That is called TREND.
Have you ever noticed trends when buying or selling stocks? As a novice investor, most of my early investment decisions in the stocks weren't based on trends. I never computed moving averages. I never plotted a trend line to predict the stock's directions. When a popular stock goes down by 5% or so, I buy it. The next day, the stock would go down by another 5%. The following day, it would go down by another 5%. I've literally seen my capital getting eroded. A trend line or moving averages would help you to understand the stock's direction. Thereby, you can make wise investments. There are several tools available in the market to plot trend lines. You can even use your Microsoft Excel spreadsheet to compute moving averages and trends.
Always, look for trends. Understand, the reason behind the trend and make investment decisions accordingly !
Have you ever noticed trends when buying or selling stocks? As a novice investor, most of my early investment decisions in the stocks weren't based on trends. I never computed moving averages. I never plotted a trend line to predict the stock's directions. When a popular stock goes down by 5% or so, I buy it. The next day, the stock would go down by another 5%. The following day, it would go down by another 5%. I've literally seen my capital getting eroded. A trend line or moving averages would help you to understand the stock's direction. Thereby, you can make wise investments. There are several tools available in the market to plot trend lines. You can even use your Microsoft Excel spreadsheet to compute moving averages and trends.
Always, look for trends. Understand, the reason behind the trend and make investment decisions accordingly !
Saturday, April 5, 2008
Let the tools work for you in trading stocks
What if you buy an RV and use it JUST like your car - to go to work and come back home, and ofcourse, to do some shopping.
What if you buy a big house and just use the living room ALONE for everything, like a studio?
I'm not an exception. I'm registered with Ameritrade for about a year now. I hardly use any of the tools they provide. All that I know of till date is to SELL & BUY a few shares by placing LIMIT orders. However, there is a myriad of options and tools they provide. I happened to attend one of the Ameritrade's training sessions ("Market Trading Tactics"). The trainer told about the common mistakes done by novice investors. He also explained about the tools and services provided by Ameritrade.
Wow ! It is really amazing. The system can do trades when you are sipping your Margarita and enjoying your vacation in Bahamas. The tools like "Trailing Stop" can also maximize your profit and minimize your losses. Tools like Strategy Desk can help you to perform technical analysis before making investment decisions. Well, you don't have to be a computer geek to use these tools. Even a novice investor can understand and use it. I wish I had known this information 6 months back.
I'm not saying that you've to use ONLY these tools. But, use the right tools ... tools that you've access to. You'll save a lot of money and time. Let the tools do all the HARD working. You should just do the SMART working.
What if you buy a big house and just use the living room ALONE for everything, like a studio?
I'm not an exception. I'm registered with Ameritrade for about a year now. I hardly use any of the tools they provide. All that I know of till date is to SELL & BUY a few shares by placing LIMIT orders. However, there is a myriad of options and tools they provide. I happened to attend one of the Ameritrade's training sessions ("Market Trading Tactics"). The trainer told about the common mistakes done by novice investors. He also explained about the tools and services provided by Ameritrade.
Wow ! It is really amazing. The system can do trades when you are sipping your Margarita and enjoying your vacation in Bahamas. The tools like "Trailing Stop" can also maximize your profit and minimize your losses. Tools like Strategy Desk can help you to perform technical analysis before making investment decisions. Well, you don't have to be a computer geek to use these tools. Even a novice investor can understand and use it. I wish I had known this information 6 months back.
I'm not saying that you've to use ONLY these tools. But, use the right tools ... tools that you've access to. You'll save a lot of money and time. Let the tools do all the HARD working. You should just do the SMART working.
Stock Investors are weird !
Well, if you are a common man like me, thats what you would think - "Investors are weird". 3 months back, when the market conditions were really bad, an increase in unemployment rate would push all the major stock indicators (DOW/NASDAQ/S&P500) to the ground. In the last 3 months, Fed/Govt. had taken a series of steps to restore the economy (reduced the interest rates, conducted auctions to pump a lot of money into the system, saved Bear Stearns, approved a stimulus package bill).
Today, the unemployment rate climbed to 5.1 percent, an all time high in the last five years. The recession fears are still lingering. Many of us fear that the economy is already in recession. However, the DOW lost just 16 points and NASDAQ gained about 7 points.
How can this be explained? The more I try to understand the market, the more I understand that I cannot understand the market :)
The investors are really weird. May be, they are wired to be weird ?!
Today, the unemployment rate climbed to 5.1 percent, an all time high in the last five years. The recession fears are still lingering. Many of us fear that the economy is already in recession. However, the DOW lost just 16 points and NASDAQ gained about 7 points.
How can this be explained? The more I try to understand the market, the more I understand that I cannot understand the market :)
The investors are really weird. May be, they are wired to be weird ?!
Sunday, January 6, 2008
Are you a short term investor? Don't ever blink !
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?
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?
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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