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There are dozens of phrases and quotes that can get in the way or your stock market success. [In this article I have identified a number of them and conveyed why each and every one should be totally dismissed.] Words: 910
So says Peter Hodson (www.sprott.com), in an article* originally written for the Financial Post which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Hodson presents his list below and refutes each, one by one, as follows:
1. “I will buy that stock on the first sign of a pullback”?
Now, why would you tell yourself that? Either (a) you are looking at a good company worth buying, or (b) you are looking at a bad company not worth buying. A “pullback” does not make a bad company good, or a good company better. Do your research and, as Yoda might say, “Buy or don’t buy: There is no pullback.”
2. “They only missed earnings by a penny.”
Investors tell themselves this when a company reports earnings and those earnings miss consensus by a small amount. Often, the stock plunges. You might tell yourself that everything is OK, and that the company only missed their numbers by a penny or two. This might prompt you to hang on to your shares, or – God forbid – buy some more shares. This phrase gets in the way because it clouds your thinking.
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Instead of saying, “they only missed by a penny” ask yourself instead what the company did to try and make their earnings (answer: everything). Management might have whipped its sales people, used aggressive accounting, enhanced promotions and extended credit and so on in order to meet earnings expectations. Having failed to do so this quarter, there may be few tricks left to boost earnings in the next quarter. That’s why stocks often plunge on a small earnings miss. Don’t talk yourself into holding a disappointing stock for a few more quarters.
3. “It’s a healthy correction.”
We hear this all the time from the financial media. When the market plunges 5% or 10% in a short period of time, you often hear the phrase, or its cousin, “there is lots of profit-taking in today’s market.” While it is true that markets can never go straight up, a “correction” should instead be called what it really is: “the market is going down.” It may, in fact, be a correction, but nobody can call it that at the time, and you won’t know what it is until it is over. It may be the start of a 10-year bear market, and if so then calling it a correction will only cause you to hang on longer and lose more money. Besides, if you are long the market I am not sure why anyone would call a market downturn “healthy.”
4. ” I am cautiously optimistic.”
This one slays me. If you watch any analyst or commentator on TV for more than 20 minutes, you are bound to hear it. People say it because it gives them an out both ways and makes them look smart. If the market rises, they can say, “see, told you! I was optimistic.” If the market falls, they can say, “Well, I WAS cautious.” The phrase is meaningless. Either you are cautious or you are optimistic. You can’t be both. Give the phrase up. If your advisor uses it, ask him or her what they mean, exactly.
5. “When I get my money back I will sell.”
Some investors in Nortel might have used this phrase repeatedly over the years. Investors don’t like to actually realize a loss, so they use this phrase to convince themselves that they will exit their mistake as soon as they break even. In many cases, though, as I am sure you will have discovered over the years, breaking even often never occurs. You get stuck holding a losing investment for far too long. Before you even consider uttering this phrase, you need to consider the opportunity cost, or the lost potential income or capital gain: You potentially give up by hanging on to a loser stock. Other investment ideas might go up or at least give you more income. It is often better to sell a stock that is down now, and then reconsider it as an investment once its “problems” have been solved.
*http://www.sprott.com/Docs/ViewFromTheStreet/2011/Jul-9-2011.pdf
Other Articles by Peter Hodson:
1. Here’s a Game Plan for the NEXT Time the Market Plunges
Sooner, rather than later, [excessive] volatility will break out again so it is important for investors to have a game plan in place for such a future event. Below is just such a plan that I would like to share with you. Words: 1407
2. What to Watch For When Considering Companies to Invest In
Investing in the stock market is hard enough. The last thing you need is to find yourself owning a company that has questionable accounting, disclosure or other policies. [Below is] a review of 5 things you should watch out for when investigating companies for a stock investment. Words: 740