Wednesday, April 29, 2009

Stock trading in times of credit crunch-lessons so far…

  • The greater the risk of huge losses, the greater the risk of huge returns
  • In other words, it’s all about marginal returns.
  • If you were to buy a share at a 1/10th of its peak price, you’ll get to 100% gain faster than one who buys it at a ¼ of its peak price or the laggard who buys it at half its peak-price.
  • Don’t analyse (you’ll get paralysis), trade.
  • Ignore brokers' recommendations. If you are cautious and nervous after the getting pounded or seeing the pounding investors took last year, imagine how risk-averse somebody whose job depends on getting stocks right is…Classic, Nomura upgrade of Barclays this week from £1.10 to £3.20.
  • Once you buy, volatility will be your biggest enemy. So have stop loss in your order, but upgrade it as you go along.
  • Pick nuggets. Of info and all the happenings at your finger tips. There is still a recession out there, so share could still spring nasty surprises…
  • Get it right when buying is as important as getting right when you sell.
  • Take profits if you think there is likely to be a dip to a place below where you bought . Otherwise, stay calm.

1 comment:

Maishinski said...

One interesting thing I read somewhere:

If a stock you bought falls in value by 50%, it needs to rise in value by 100% to reach the price you bought at.

How do people respond to market fluctuations?

Suppose you were given the option of 50/= cash or Coin toss odds of 100/= heads 0/- tails... what would you go for?

Ever wondered why we hold on to losing stocks - even when its clear that an exit would prevent even higher losses?

Ultimately, it boils down to a game of Greed, Fear and Emotions.

Every investor thinks he/she is smarter than all the rest when making a buy/sell. But at that moment the investor is someone else's "bigger fool".

"It's alll a big Ponzi Scheme" as the murdocks et al would say.