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Common mistakes most investors make
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Nostradamus
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03-Jul-2006 19:23
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3. Buy and hold In choppy market, be willing to take small gains. When needed, holding leading stocks is often easier when the market's heading up. But when the market gets choppy or heads south, it makes sense to take quicker profits and keep your watch list fresh so you're ready to jump into new, early-stage breakouts. Why? Since three of four stocks follow the market's trend, it becomes tough to hang on. And if your stock's risen over a long period, it may well be in a late-stage base, which tends to carry higher risk of failure. A good example is tech stocks or Nasdaq. The Nasdaq rose 25% from mid-August last year to its Jan. 3 intraday high. But since then it's struggled to turn positive, with mostly choppy action along the way. Through Friday's close, it was down 3% for the year. Other warning signs have cropped up too. The tech-heavy index has seen four distribution days in the past three weeks. Industry group leaders like home builders and retailers have come under pressure. Failed breakouts and negative reversals have increased in frequency. All this makes it more of a trader's market. You need to be nimble. Be ready to take profits if you see red flags, and cut losses 8% below your purchase price. Don't be afraid to raise cash. Keep your watch list refreshed so that when you do take profits, you can move your cash into up-and-coming leaders. When the market's rocky, taking a 20% to 25% profit isn't a bad idea, doubly so when dealing with a late-stage breakout. If you keep your watch list well pruned, you can be ready to buy fresh names with your newly raised cash. |
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ten4one
Master |
03-Jul-2006 19:03
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Can't agree with Livermore more! Whatever strategy you used, stick to the ones that bring home the Cash - whether you buy low sell high or buy high sell higher! Cheers!!!! |
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Livermore
Master |
03-Jul-2006 18:45
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Hey Nostradamus, some points are similar to the greatest stock trader, Jesse Livermore. Mr Market is always right, don't argue with HIM . |
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Nostradamus
Supreme |
03-Jul-2006 18:25
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2. Using fundamental analysis only Winning patterns show up again and again. History always repeats itself in the stock market, because human behaviour doesn't change. Looking at charts of past market leaders shows you what to look for today when trolling for a new crop of winners. Charts show you how institutional investors are buying and selling a stock. The same chart patterns, also known as bases, come up again and again. Cup-with-handle, cup-without-handle, double-bottom, and flat are the most common bases. Institutional investors poured money into stocks in the top industry groups and those with accelerating earnings and sales in the past. They will do the same today. Big money investors also have shown an affinity for companies with new products or services that propel sales and earnings at a faster rate than before. |
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Nostradamus
Supreme |
03-Jul-2006 18:08
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1. Buying low-priced stocks Though it might be tempting to snatch up shares of a stock priced at just a few cents a share, these companies often aren't the market's best performers. For one thing, there's usually a reason a stock is trading at rock-bottom prices. The company's profits could be disappointing or nonexistent; its product may not sell; or the firm itself may be tiny, with a minuscule market share. Large investors such as funds, pension funds and insurance companies tend to steer clear of cheap stocks since they can't buy large positions without sending the stock's price flying. As a result, low-priced stocks are often thinly traded, which can make them more prone to wild price swings. Since you want to cut losses at no more than 8% from a buy point, a loss of a few cents could knock you out almost immediately. Another risk in buying cheap stocks is that if the share price falls far enough, the stock could be delisted and bumped from the exchange. Or the company itself might go out of business, making your investment even more difficult to cash in. Besides, at the end of the day, the return you make on your stock investment is based on the percentage gain or loss the stock makes - not on the number of shares you have. A better strategy is to focus on stocks priced $0.20 a share or higher. Your investment candidates should also have solid earnings and sales track records. The stock market tends to reward strong fundamentals as signs of leadership. Though a stock that's fallen well below its former highs may look like a bargain, remember: There's probably a good reason it's trading so low. Instead, focus on stocks that have already worked their way through a base and are poised to move to higher ground. |
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Nostradamus
Supreme |
03-Jul-2006 17:57
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There?s a lot of advice out there when it comes to investing: Buy low, sell high. Stay in for the long haul. Stocks with low P/Es offer the best chance for gains. Unfortunately, a lot of it is bad. This list of 10 common investor pitfalls may fly right in the face of conventional wisdom, but if you can avoid them, you?ll be well on your way to becoming a better ? and smarter ? investor. I'll elaborate on the points later on. 1. Buying low-priced stocks People are drawn to bargains like moths to a flame. But when it comes to investing, all too often you get what you pay for. 2. Using fundamental analysis only History always repeats itself in the stock market, because human behavior doesn?t change. Looking at charts of past market leaders shows you what to look for today when trolling for a new crop of winners. 3. Buy and hold Holding leading stocks is often easier when the market's heading up. But when the market gets choppy or heads south, it makes sense to take quicker profits and keep your watch list fresh so you're ready to jump into new, early-stage breakouts. 4. Averaging down Some financial gurus would have you believe that averaging down is the silver lining in a declining stock. As the stock price goes down, you buy more shares. The average cost for your holding, therefore, goes down. But that strategy rests on two big assumptions. 5. Not having an exit strategy Knowing when to sell your stock is as much a skill as knowing when and which ones to buy. A key investing rule is to cut your losses quickly. 6. Focusing on low PE stocks A common mistake among growth investors is to ignore stocks with unusually high price-to-earnings ratios. Truth is, many of the best stocks tend to command a premium because of their outstanding growth. 7. Buying stocks in a down market Patience is a virtue for investors. Never is that more true than during a market downtrend. A falling market makes owning stocks a risky proposition. Three out of every four stocks follow the broad market's trend. 8. Focusing on dividend-paying stocks Dividend-paying stocks can sometimes provide a steady income stream for risk-averse Investors. But dividend yielding stocks sometimes go down. For growth investors, they may also produce smaller potential gains. 9. Falling in love with a stock One prominent school of investing favors an impersonal approach to stock picking. Let the numbers dictate what you buy and sell, goes the theory. Do not fall in love with your stocks and don?t let fear and greed enter into your decision making. In other words, take the emotion out of investing. 10. Paying too much attention to insider selling For decades, people have spent endless time and energy searching for an easy way to time the market. Oscillators, sentiment indicators, and insider selling gauges have all been treated as reliable primary signals to buy and sell at the right time. |
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