Causes of big losses in stocks
1) Lack of basic knowledge, education about stock investing, markets, economy.
Buying on tips/hearsay (from strangers & self proclaimed gurus).
2) Inability to scrutinize a company’s present financial health (financial statements) and evolvy some idea about co. future (including competitors).
3) Rigidity/stubborness to EXIT even when proven wrong.
4) EGO (psychological barriers) to accept LOSS – (results in increased losses).
5) Unfounded hope for a REVERSAL.
* As of today, don’t expect REVERSAL in 2018 despite Amnesty scheme, CPEC mantra, Tiger economy blah blah… Also due “trade war” fears, foreigners are pulling out from Emerging markets worldwide – global selloff may even intensify…… Am happy with 43k +/-5%.
6) Too big a position size, risky process of going all-in.
* Position-Sizing determine whether we are successful in market or not.
–>Buy too much and we could blow ourselves up. Buy too little and a BIG Win may not be so big.
—>We need to buy the RIGHT AMOUNT and at RIGHT PRICE.
7) Failing to spot a #DOWNTREND and continue BUYING (dangerous process of averaging).
8)Shorting an uptrend (during bull run).
9) No strategy, plan or process. #RiskManagement
10) No investing strategy or trading system.
11) Lack of discipline. Failure to manage #emotions. No #Patience.
12) Neglecting and ignoring “what market is whispering”. weekly/monthly volumes, price fluctuations, volatility, liquidity, mkt depth/breadth, no of buyers/sellers (mkts thrive on buyers, sellers kill mkt).
13) Buying near tops.
a) 10 Investing Commandments:
1 Study your companies
2 Buy cheap
8 Small losses (if any)
9 Big wins
10 Reassess companies at regular intervals.
* Nothing makes a stock investor feel so smart as a bull market — and nothing humbles a investor more than a major market correction.
* During bull run, you can look like a genius and an idiot in the aftermath of drawdown.
* Investors always overestimate the methods/philosophies that make them happy.
c) Wrong actions with the right information are bad for the short term.
Right actions with the wrong information are devastating in the long run.
**** Try best to keep the strongest stocks the market has to offer in your portfolio
ensure minimum losses when you’re wrong.
Source: jawad saleem FB