Recently, some of my colleagues were discussing about stocks and investment. The topic mainly revolved around how the economy seems to be spiraling downwards with no end in sight and how this is affecting the stock market, which was also plunging downwards. I can sense the fear in them as most of them planned on not buying any stocks.
Usually, I will try my best not to get involved in any discussion on stocks and investments for reasons which I will blogged in my subsequent posts even though I am rather passionate about it. However, I went in ahead to join the discussion as I was rather tempted and I went ahead to share my opinion on how one should buy stocks now given that the stock market have plunged down by a huge percentage and stocks were at a very low valuation. After the discussion was over, one of them seems rather impressed by what I have shared and I also offered my recommendation on the blue chip stock purchase on a particular fundamentally strong company that was undervalued.
True enough, he followed on my recommendation and went in to buy the stock of that particular company. Unfortunately, within a few days of the purchase, the stock price of that company fell by 10%. Even though there was a significant downwards price movement, the fundamentals of this company are still sound. When I met him the next time round, he told me that he had sold the stock. I was rather surprised so I asked him why. The reason he gave was that he panicked when the stock price start to fall and he was fearful that it will plunge even more. Moreover, he felt uneasy holding on to this stock and as a result, he often check the stock price frequently and the changes in the price movement made him felt even more uneasy. Thus, he decides to sell off the stock.
Investing requires a lot of effort indeed. One will have to spend hours looking at the financial statement of the company, compiling the data into an Excel spreadsheet and crunching the numbers before coming up with a conclusion on whether the company is fundamentally sound and below valuation. However, that is not the end. One must also have the tenacity and be mentally prepared to stomach any possible drop in share price after the initial purchase. After all, it is unrealistic to expect the share price to increase immediately after the purchase. In fact, if one have faith in their own analysis, they should not be fearful and they should even be prepared to make more purchases to average down the buying price of the stock. It is these attributes and how one controls their emotions that determines whether the investor can be profitable.
Wednesday, February 18
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when you lack knowledge about the stock you are buying, its akin to gambling.
ReplyDeletei think your friend is not investment savvy enough and may actually have a profile of being risk adverse. stocks are not for everyone, suits people who have a higher appetite for risk.
> .. the stock price of that company fell by 10%
ReplyDelete> .. he told me that he had sold the stock.
I think your friendj did the right thing i.e. cut loss at say 10%.
Preserve capital and come back another day when it's even lower.
Just treat the 10% as a business expense, all business has it's expenses :)
Hi bbqchickenwings,
ReplyDeleteIt's my fault partly. I should have just kept my mouth shut and not mention about anything. Besides, he didn't do any research on the fundamentals of the company so he has no confidence in it. If it's me and the stock that I just bought actually plunged 10%, I would go in and buy in more perhaps.
Buying individual stocks are not for everyone perhaps but I do think if time is on your side, one can buy ETFs. If one knows that from history that stock indices has always been rising in the past, this can give rise to more confidence in the investment one has bought.
Kay
Hi paperwinebox,
ReplyDeleteThe strange thing now is that my friend wish to buy that stock again as he thinks that it was not quite wise of him to sell it away. But the price of that stock is still hovering around his selling price and he thinks it is quite foolish of him to buy it now after he has taken that loss of 10% by selling it in the first place.
Kay
Kay,
ReplyDeleteI tried buying the DBS STI ETF 100 at 3 different POSB/DBS ATMs during the 2nd last and last day of the IPO. All of them said "This ATM does not issue receipts nor STI ETF shares". There is no news about the outcome of this IPO in the media nor on DBSAM's website. I find this strange.
Do you know what happenned? Was the IPO closed early due to over-subscription? Tks.
Hi VS Lingam,
ReplyDeleteI'm not too sure on what is happening as I'm not taking part in the IPO. You might want to contact DBSAM directly. Do keep me informed on what happens subsequently. Thanks.
Kay
Hi Kay,
ReplyDeleteStock indices may have always been rising in the past. But this is an exceptionally bad time. Do take care in your investments.
I have a feeling the 'real' heart attack has not begun.
Hi bbqchickenwings,
ReplyDeleteI am using surplus funds which are non-essential so I guess I will be alright. On a side note, I have been having that kind of feeling for a long time too.
Kay