As an old saying goes: Personality determines one's fate. I'm often asked what stock(s) I can recommend. Actually successful investing is not too much determined by what stocks one has traded; rather it is more importantly determined by how one has traded. In other words, one's investing behaviors (personality) will ultimately determine his/her success (fate). Therefore I will share some thoughts about successful investing based on what I have learnt over years from my mistakes and successes.
Please honestly ask yourself: when do you feel most comfortable to buy stocks? Most people will likely answer: when the stock market keeps going up and a lot people are buying. This is called herd behavior. I can understand. After all, human beings are social animals. People feel safer when being with other people and feel scared when being left alone. However, if you really want to be successful in investment, you have to be used to being lonely, very lonely. Actually the greatest investment opportunities arise at the time when everyone is crazy about a stock and you want to short/sell, or when everyone is extremely depressed and you want to long/buy. The reason is actually very simple. The stock market is simply a gigantic money game. The stock market itself will not generate any money; it simply moves money from one pocket to another. Now let me ask you: do you think most people in the stock market will win or lose. If your answer is win, I will ask you to sell all your stocks immediately, run from the market and never touch any stocks, because you are too stupid to even play with any stocks. You are doomed to lose. The answer is for sure that most people will lose money in the stock market. If you understand this, then the logic becomes really obvious: if you follow most of the people in the market (the herd), you will most likely lose money. You have to stay lonely and do the opposite of what most of other "investors" will do.
This is of course easy said then done. It took me years to finally understand this and more importantly to be able to truly practice like that. In my earlier years of investing life, it was just like a vicious cycle: I felt good to buy stocks when everyone was buying but the market usually tipped over quickly. I then became depressed along with others and sold my stocks at loss eventually. Over times, I could never really make money. I was determined to change my fate by first changing my behaviors. My most proud experience of truly acting lonely was at the extremely depressed abyss of the most recent crisis. As you know, this has been the most severe bear market no any active investors have ever experienced since the Great Depression. I'd be a liar if I told you that I felt very good and not scared when going through this period but I knew it was the best time to invest if I really wanted to make money. I held my breath, pinched my nose, and closed my eyes when I put through my orders. Everything has been a history by now but I'm really happy when looking back to see what I did: I bought MO (Atria) at $14.99 on Dec 29, 08, MCD (McDonald) at $54.86 on Feb 20, 09, MSFT at $18.96 on Dec 29, 08, and EPD at $16.92 on Mar 6, 09. Based on the current prices, they have risen 65%, 44%, 38% and 156%, respectively in less than 2 years. I made another lonely bet recently to short MCP (Molycorp) less than 10 days ago. This is a stock of rare earth which has become extremely popular recently due to the fact that China is said to be controlling the export of rare earth. After studying its fundamentals as well as with the technical analysis, I think this stock has too much froth in it and such euphoria cannot last long. So I shorted the stock. The stock reached its peak at around $40 end of Oct and has come down to around $33 at the moment. Since I used options to trade, my paper profit has been around 25% in about 10 days or so.
If you are not comfortable to be lonely in investing, think it in another way. Do you want to buy at lower prices when you go shopping or you want to pay higher prices. Unless you are stupid, I guess you would want to buy stuff at lower prices. Do the same thing when buying your stocks when they are low in prices, which is often at the time no one else wants to buy it. Of course, do your home work and only buy the good ones at low prices!
No comments:
Post a Comment