Some Buy and Sell Tips

A number of months ago I came across a rather interesting Website – The Investingator. Along with some phenomenal perspectives it also came with that critique on novice investor sentiment.

Along with his website full with anecdotes and useful information here are some quick tips he mentions in regard to buying and selling shares.

1. Don’t try to buy stocks at bottom.
Don’t stress yourself trying to achieve the impossible. Give yourself time to make sure an uptrend has truly begun before buying shares.

The “Investingator” makes a valid point by claiming that it is nearly impossible to time every trade to the precise bottom. However, in many cases the “buy” indicator is not a technical one, nor even a fundamental signal but rather one only exposed by sentiment.

Example: In the Daily Australian newspaper a few months ago, a story ran explaining how even the most prudent value investor wouldn’t touch Telstra Telephone Co. especially during the process of its transfer of management. As of only 4 months later, shares are up almost 22% including its 5% dividend. The media alone gave the buy signal.

2. Never throw good money after bad.
If shares in a stock fall, never, never buy more shares. Long term, the strategy of “averaging down” – buying more shares when a stock’s price falls – is a sure way of averaging down your investment performance. (Note: If you are passively investing each month in an index fund, do not heed this advice.)

The note he includes also applies to any investment that one intends to hold for the long term. If you are happy with the company, then as long as the fundamentals remain there would be even more reason to buy additional shares.

3. Cut your losses and let your profits run.
Don’t keep your money in a stock after the trend has turned downwards. Only keep your funds in stocks whose trend is upwards.

The investor, unlike the speculator seeks only those shares that will be profitable in the long run. This applies to earnings as well. If you see any break in the consistency of business, get out.

4. Never be too proud to take a loss and move on.

This is probably the most basic lesson that many should observe. We all have losses sooner or later. It’s how we digest them that define our character.

Quotes to Ponder

Striving and struggle precede success, even in the dictionary.
Sarah Ban Breathnach

Lesson: Investing is more than just a strategy. It’s a philosophy, a mindset and a way of life. One that focuses on logic rather than emotion and on the future rather than the present.

Markets can remain irrational far longer than you or I can remain solvent.
John Maynard Keynes

Lesson: Just because you’re right doesn’t mean that the markets have to agree with you. If you base your decisions on sound fundamental and logical analysis the markets will come around, eventually.

The most powerful force in the universe is compound interest.
Albert Einstein

Lesson: When investing “a penny saved is truly many pennies earned”. A dollar invested in the Dow in 1950 – Inflation Adjusted – would be worth over $10 today. Think about that next time you buy a can of soda.


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