What follows is one of my earliest articles, submitted to Ezine a long time ago.Â It was written during the stock market boom, but the number of times it has been republished during the bust,Â far exceeds the number of times it was republished during the boom itself. When you go through the full text – you will realize why.
The stock markets are at all time highs and just like the last time around – when the market was at its previous high – every one thinks that nothing can go wrong, and there is just one way the market can go – UP.Â Nothing could be farther from the truth and this will be clear from the way the market behaves in the next few months.Â Here are a few tips that would hopefully save you from losing a lot of cash in the current frenzy.
Time and again investors have burnt their fingers in the markets and here are some tips to you so that you do not end up burning your fingers in this market.
The number one tip at this point would be to sell if you have stocks and not to buy them if you have cash. The golden principle in the markets is “Buy when everyone else sells and sell when everyone else buys”. Simple enough right? Not really. Why? Because ofÂ ‘peer pressure’,Â pure and simple. When everyone else around you seems to be having a ball at the markets, you would feel like a fool if you didn’t participate now.
OK, so you can’t resist buying at this time – then at least do yourself a favor and stay away from unknown Penny Stock and hot tips that your barber gave you. True, that the stock has tripled in the last fifteen days, but that was before people like your barber started buying the stock. Chances are, that the Promoter of the company has started buying into the stock and has spread rumors like an acquisition or a big export order to fool investors – and will sell out to them at a later date.
Another tip that would serve you well is – to value a stock based on its future growth and not its past performance. For instance, many investors say – I will not buy stocks of X company because it has doubled in the last year. Well it may have doubled in the last year, but that should not be the thing you should be telling yourself. Rather, you should ask yourself why has this doubled in the last year and can it do so again?
There should be a solid answer to your question – like the launch of a new product or reduction in the prices of raw material. And indeed, if the answer is in the positive – then by all means go ahead and buy that stock regardless of what has happened in the last year.
Another tip would be to – remember what you are buying. Quite simply, investors often forget – that when buying a stock, they are simply buying ownership in that company. Most of you would know that nothing spectacular would happen in the company that you work for, in a month’s time. They are not going to double their revenues, and certainly not double your salary every month.
Then why expect anything different from the companies that you invest in?
Why expect the prices to double in a month or two? Give time to your investments; don’t reduce it to a gamble. Only when you invest in fundamentally sound companies and then give them sufficient time to grow, will you see some healthy returns on your investments. Ideally, a minimum horizon of one year is a good time.
Hope these tips will prove helpful and you will make a lot more in the stock markets than you have already been making. Happy Investing!