As I previously described I have sometimes bought or sold shares of stock in a company based upon little more than a poorly researched belief accompanied by a heightened state of excitement or anxiety.
YOU know the scenario, the mentality: “I better sell (this stock) now!” “I better buy shares now!” Why? Because “I believe . . . “.
Heck, it’s not even that you or I have a clear “I believe” thought. It’s often more a affect, an urge to impulse, to “do this now”: buy, sell, now . . tomorrow may be too late.
There should be a sign on your PC’s monitor or on your tablet that reads “ONLY buy stock “now” after you have slept on that conclusion for 24 hours”.
What stock to buy or to invest in REQUIRES more careful research and analysis than “now” can ever offer. “Buy now” is the siren call to stock investing suckers, sirens being those maidens who called sailors to steer their ships into the rocks.
When is the last time you read 2-3 years worth of financial statements before buying or selling a stock?
When is the last time you investigated industry trade journals that might have a clearer picture of emerging trends?
When is the last time you bothered to research the various government websites whose job it is to predict market trends for the purpose of fashioning public policy or informing decision makers?
When is the last time you labored to test or “reality check” the assumptions underlying your impulse to invest in a company?
I will only call myself a “rational investor”, going forward, when I have undertaken at least half of the following steps:
- Read at least a random sample of 4-6 quarterly financial reports of a company spanning the past 3+ years
- Compared at least 4-6 summaries of conference calls during the past 3+ years, to see if there’s a disconnect between projections and outcomes
- Scanned online message boards ONLY to gain insight into the efforts being invested in pumping a stock, up or down
- Scanned the professional journals for any degree of insight about trends affecting any company or industry
- Checked one or more government sources for information or data about an industry
- Looked at the major institutional stock holders for patterns of stock sales or purchases
- Look at insider trading for the past 24 months
- Look at the real world for signs of real momentum favoring or disfavoring an industry
- Slept on the accumlated data and information for at least 24 hours
- Look at the company’s stock price charts for the past 5 years, 1 year and 6 months to see what connection(s) may exist between the stock price, the market as a whole, and company specific news
- Sleep for 24 more hours after looking at the charts
- Look for signs of recent price bottoms and price support
- Question what could pull out the bottom
- Ask myself “Is this really the best alternative for where to invest my money, now?”
- Sleep on it again and don’t ever act when I’m not well rested
- Decide on an entry point for my stock purchase, based upon all of the above, AND an EXIT PRICE
- Then sit back, wait for the market to backslide – as it does so often anymore – and only THEN make a stock purchase.
- And last, but not least, sell the darned stock at the pre-agreed (with myself) price, and it that’s on the upside BE HAPPY and don’t second guess myself
The most rational investments I have made have been those that have followed the above pattern.
The most rational investments I have made have had both a well thought out entry point and an equally well thought out exit price.
Lastly, the most rational – and successful – investments I have made are those where I respected and followed my own thoroughly thought out advice, both as to entry price point or stock purchase price and exit price.
Do this. Take your profits when they are there to be had. And don’t look back.
Except to help judge when you will next enter back into the market for a given comopany’s stock.
After a sound night’s sleeep.
