Tuesday, 18 June 2013

Be rational, stay focus on the business of the company and not its share price

What Kills the Amateurs

Nothing is more fatal to amateur investors than thinking that a stock trading near a 52-week low is a good buy. They based this logic on the notion "what goes down must eventually comes up".

Suppose we have 2 companies
i. Co. A had recently gone down from $5 to $1. 
ii Co. B had recently gone up from $1 to $5.

Believe it or not, all things being equal, a majority of amateur investors will choose Co.A because they believe that it will eventually make it back up to those levels again. On the other hand amateur investors will think that chasing after Co.B is almost suicidal because the music will end soon. 

The point is that the stock price is a reflection of the company. If a great firm is run by excellent managers, there is no reason the stock won't keep on going up, vice versa.

Therefore dun said the falling knives killed you when actually you have performed hara-kiri yourselves.


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