'Stocks
have reached what looks like a permanently high plateau'
Professor
Irving Fisher - Economist, Yale University (1929!)
But timing relates to more than just the market in
general. It is, of course, absolutely critical in picking individual stocks.
Look at the 52 week range for practically any stock in the speculative sectors
and you will find incredible variations in pricing. What's going on? Are
all these companies oscillating wildly between near bankruptcy and a rosy
future? Why are there so many fluctuations of hundreds of percent?
The answer generally lies less
in the fluctuating fortunes of the companies (some are
intrinsically worthless at any point in their range)
than in the fluctuating sentiment of investors and in
some cases, manipulation of the price by unscrupulous
Sharks. It is very important for the spec punter to
understand this point. The timing of the purchase is
just as important, maybe more, than the selection of
the stock.
How does one know when to purchase?
There are no simple answers or we'd all be Warren
Buffetts. Remember, as in all forms of gambling, your
wins are to some extent dependent on someone
else's losses. Gambling represents a redistribution
of wealth, even in a positive sums game like the sharemarket.
(Cynics have humorously dubbed casino gambling, lotto
and poker machines as a 'stupidity tax'.) The
key is to avoid as many obvious mistakes as possible.
1. Be very careful before
buying into stocks that have already had a substantial
rise. For maximum safety, try and look for stocks
that have traded steadily around long term support
levels, but are not short of cash.
2. Be very careful about
buying into stocks that are consistently falling.
Trying to pick the very bottom (or top) of either
a market or an individual stock is fraught with danger.
Wait for the stock to stabilise, even if this means
having to watch it bounce off its bottom. Waiting
for stability implies not buying it the moment it
bounces either...there is such a thing as a 'dead
cat' bounce. When timing the taking of a profit, that
most difficult skill, remember that your greatest
enemy is greed. As the famous saying goes,
'Always
leave a little for the next person.'
3. Keep a weather eye
on sentiment in the sector. It is very dangerous to
buy into 'hot' sectors. In the 1987 crash for example,
the previously hot entrepreneurial stocks like Ariadne
were slaughtered and many disappeared, costing investors
(read gamblers) billions.
CLASS OF '87
Try and be ahead of the game...always
ask yourself which sectors are due for their turn
in the sun and see whether there are any reasons in
the real world why that might occur.
NEXT ... Cycles
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