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Diy-4 You Want to Make Money in Stocks – Keep Still
An observation I made some five years ago still holds true today, and this is probably because it was already a proven fact even before I noticed it. To make money in the stock market, you sometimes have to do everything to do nothing.
Oh, don’t worry, that is not a trick statement. It simply means, keep still. Do nothing. Just leave it!
I know, if you have not been long enough in the market to hear or read things like: buy and forget, invest for the future, value investing, etc… you’ll probably say: “whaaat, are you crazzzy??” But it is not crazy at all.
This, of course, presupposes that you have chosen your stocks well. If you have not, well, then you should have! There shouldn’t be any excuse from choosing the stocks properly. There are a lot of books and literatures that teach how to choose the best stocks or mix of stocks for you. Get the one you are more comfortable with.
It is a given that not all the stocks that you will choose are going to perform or out-perform according to expectations. And while they might, chances are they will not all behave similarly at the same time - all the time.
Now, the beauty of making the proper selection of stocks is that sometimes, even if some or many of your positions seem to be costing you money as their prices are not moving to the direction that you want (normally upwards, if you are not into short selling) you will notice that your overall investments are actually gaining!
Newbies like me who are reading this should take note that we are talking about prices of stocks that move in different directions. I hope you have selected and bought shares of different stocks (diversify) and not just poured all your money to buy shares of one (single) company. Sure, that will reward you if you hit the jackpot and its prices reaches for the sky, but it will likewise burn you to ashes if it fizzles off and dies.
Let’s go back to keeping still. Nobody can tell exactly how the market will behave at all times. .. Well, one time, I thought I know better. I bought a stock at 15 per share. When it doubled after sometime, I sold. It’s not bad. I thought I was lucky to sell when I did because after that its price began to slide then after a while it went sideways for a long time. When I revisited it, it was back near the price I sold it so I just let it be. I soon forgot about it because it whipsawed for a few more months.
The experts are saying that a stock that is moving sideways for a long time can go either way, up or down, and when it does it is going to move with a vengeance. So, what is a newbie to do? I believe on erring in the side of caution so I avoided it.
Now it is selling at 83 and I cannot go in anymore because its PE ratio is already too high. You get the point?
Here is another sob story. It’s not a sob story because I lost money in it. It is a sob story because I could have made more money with it had I kept still. Check out the jpeg chart I posted here. Over a period of 52 wks (1 year), it went up from 57.30 to 129.70. If I bought it at 57.30, I would have made 72.40 per share if I sold it today. But even that would have been too small had I known better.
I bought that thing at 15.00 actually. After I’ve kept it for some time, on July 19, 2011, it went up to 49.50 and then its price began to go down. Two months later on Sept 23 it closed at 37. A two month downhill movement of price could be a bit jittery. I was forced to follow an expert advice that says “you should sell your position when you lose 20 percent from your purchase price.” At 37 it has already gone down by 25 percent!
I mean, I was already up more than 200 percent from my original cost what is wrong with selling when you reach a threshold set by the experts, right? So I sold at 37.
What do you think would I have made had I waited say, till just a few days ago when it closed again at 124.00 before I sell?