Friday, June 22, 2007 Lee: 8 things I learned from the stock market By Kelvin King Lee Babble On
YES I succumbed. I jumped into the stock market because I thought I could make a killing. Instead I think the stock market is killing me. Not literally of course. Just mentally, emotionally and a little bit financially. Although, as a personal disclosure, I did make a tiny paper profit in the market. Just a little.
I haven't entirely been killed by the market yet though. I still got some fairly good investments (and brain cells) left. Plus I learned some lessons which I am now sharing with you. So, it wasn’t a total loss. You can use these lessons in everyday life, too, and you don’t even have to go to the stock market and spend money to try it out.
1. Never ever trust rumors. - Rumors and gossip, call it whatever you want. These are basically unverified information. Most of which is not even reliable or true. This is especially applicable to those stock "tips" which are often based on the rumors we are talking about. In business and in life, you have to decide based on good, solid and reliable information. So, don’t invest or do anything unless you are sure the news you are basing your actions on is reliable. Otherwise, you may just wind up losing your shirt. Literally.
2. Don't go against trends. - If the stock is rising, don't keep buying a stock just because somebody said it was good. In the same way, in real life, don't keep doing something that isn't "normal." I am all for individuality, but do you really want to risk being called an outsider and "weirdo?" or worse, a loser?
Because that's what you will be in the stock market and real life. Who doesn't follow trends or what is normal anyway? Heck, I have one friend who insists on wearing denim vests ala the village people all the time. Unique? I guess. Accepted? Well.
3. Buy cheap. Sell high. - Don't do it the other way around. That's a no-brainer. But oddly enough, it does happen. A client of my cousin’s travel agency once bought a very expensive cellphone and then sold it dirt cheap to my cousin a few months later when she realized she needed the cash very badly. Although some people call it cutting your losses, I just call it bad investing. Period.
4. If it's too good to be true, it probably is. - You sometimes hear about a stock that is so good because the company is a monopoly of the industry or that it has fantastic dividends coming up and that you can't lose if you get those stocks. So some people chase these stocks no matter the price because, well they think they can't lose with it. Well that isn't necessarily true. Remember all those Multilevel marketing (MLM) companies? A lot of people jumped in because they thought it was easy and a sure winner. Remember the Zagu phase? A lot of people franchised those shops because they thought they couldn't lose. The profits for both ventures were supposed to be uncountable. Well, I don't see very many Zagus around now. Nor are MLM companies very attractive in this day and age.
5. Don't let sentiment rule your decisions. - If a stock is rising, sell. Don't hold on to it just because of sentimental value. The opposite holds true as well. If a stock is losing, cut your losses and run. Don't hold on to the stock in the hopes (probably very much in vain) that the stock will recover. The rule of thumb is, if it goes down by 3-5% of your original buying price, let it go. The same could be said of real life. For example, if you are about to marry a guy, even if you aren’t sure he is the one, but you agree to marry him anyway because he was your first boyfriend, or because of all the good memories you shared, that isn’t a good decision. At all. Cut and run girl.
6. Don't buy on a whim. Research. For goodness sake, RESEARCH! - Before you buy a stock, research first, find out all you can about the stock, and when you have done that, try and find out some more. Nothing beats research in the stock market. Whether it be through technical analysis or reading up on the financial statements of the company, or the news reports about the industry, you will learn whether the stock is worth getting. The same could be said of life and relationships. Research all you can the guy who is courting you, find out all you can about the car you are thinking of buying, read up on the job you are applying for. Research is key.
7. Learn to accept loss, learn and then move on.—in the market you will make mistakes, especially if you are a newbie like I am. I once bought almost a thousand shares of stock at 10% higher than the price I meant to pay for it due to a few mistaken keystrokes. I lost money there and was ranting about it for a day (as my friends can attest). But when I did the actual math, all I lost was a few hundred pesos. A small amount of money and not worth all the aggravation I caused myself and my friends. So I learned a lesson. Be careful when buying and try not to complain so much lest I lose all my friends. In real life, if someone breaks up with you, move on. Accept the fact that you aren’t together anymore. Sure, go nuts for a bit, but in the end, accept the loss, learn from it and move on. Got fired from work? Failed a test? Same thing. Accept it, learn from it, and then move on.
8. Don't let “what ifs” get to you. - I once sold some stock at a fairly high price, only to have it zoom even higher once I sold it. That tortured me for an entire morning. I kept thinking, what if I had sold the stock an hour later and made more money. What if? But thinking about that “what if” that morning caused me to not trade and probably cost me even more money. Don't let these things haunt you. You have to shunt the "what ifs" aside and keep going.
So there. Those are the things I learned from the market. I've only been investing for a few weeks and already it feels like a lifetime. I can't imagine what it would be like if I did this for a living. Stockbrokers must have nerves of steel. Then again, it isn't their money they are spending when they work in the market. And like one friend remarked "why are you giving your money to a guy whose job title says BROKE?"
