Nowadays news about the stocks are available absolutely free everywhere and on the net. Are they real?., Yes, they are real. Can you trust them., Yes, you can trust. Can you make a trading decision out of it?., A BIG NO!!
A BIG WHY? Read Further... :-)
The action and reaction time of the prices in stock market are so fast that by the time you read or get the news and take a decision based on the news, the news becomes obselete and the price of the stock would have absorbed the news already and by the time you enter, it would be too late already.
I would like to quote a famous example.
Imagine, there is a channel that monitors each of the roads and signals in a city and provides traffic information to the common people.
Due to the large number of roads & signals, the time to get back for the next update of a road or a signal is 5 minutes.
There is a blind man driving a car. His friend is sitting in his house and monitoring the channel and giving instructions. The blindman stops at a signal and then waits for the "green light" instruction from his friend. His friend waits for the channel to broadcast the latest update on that signal (which is delayed by 5 mins). He eventually gets it and communicates to his driving friend (blind man) and he takes action (resumes driving) for the green signal.
Will this work ? A Big No, right ? So is the case for most of the news and recommendations.
It might also happen that, the blind man might be able to go through without any trouble. After all, a dead clock also shows correct time twice in a day!! That doesnt mean the clock is working...
Who the blind driver is? Yes., we the retail investors are pretty much like the blind driver...
I would like to quote another case. Once Infosys announced its results and the results were very positive; better than its previous year's same quarter, better than its previous sequential quarter etc etc. The general expectation of the crowd would be to buy Infosys shares based on the news/good results. But what happened in the market was, Infosys went down by more than 10-15% in a matter of few days after the results were announced. So, what is wrong? Upon further analysis, I realized that, prior to the announcement of the results itself, the shareprice has gone up by more than 20% (in expectation of better results). So, once the results were announced, profit-booking kicked in and hence it went down.
Now to re-instate:
The action and reaction time of the prices in stock market are so fast that by the time you read or get the news and take a decision based on the news, the news becomes obselete and the price of the stock would have absorbed the news already and by the time you enter, it would be too late already.
What is the moral ?
Short-term traders/investors: Buy on rumours and sell on news!!
Long-term traders/investors: Look behind and beyond the news!!!
Happy Investing...
Selva.
Showing posts with label Stocks. Show all posts
Showing posts with label Stocks. Show all posts
Tuesday, January 4, 2011
Wednesday, December 29, 2010
Stock Market - Retail Experience
For long I wanted to blog on this topic., but for whatever reasons, couldn't do it. :-(. For 2011, I have decided to give equal focus to this subject and my photography interests. :-)
I will primarily scribble :-) about my experience and try to make a bit of awareness among retail investors... :-)
Retail Myth:
While trading in stocks is the fanciest thing that anyone can get hooked to very easily, it is a fact that 95% of the retail investors end up losing money in the stock market. Only 5% of the investors (Probably by luck) :-) have made money or either making money in the stock market. (Probably only temporary) :-)
So, what does that mean? Is the stock market not for the retail traders/investors?., Perhaps Yes!! :-) Atleast not for warm-blooded people...
The primary reason for the failure of retailers is not lack of knowledge, not lack of information, not lack of money power, but greed & herd mentality!! Psychology also plays a very major role. (From my experience - will further elaborate in subsequent blogs). This is definitely not everyone's cup of tea. Only cold blooded people would love to stay in the market. :-)
Broad Stock Market Cycle & Psychology of a Retail trader/investor:
The market generally comes down very very fast and goes up very very slow. (Testing the temperament of the investors during the course of both directions.)
There is a phase when the stocks are available dead cheap but there are no buyers. (This normally happens after some blood bath in the market!). Market sentiment is very bearish. That is, the general sentiment and expectation is that market can go only one direction and that is downwards. There is literally no hope and people have lost complete confidence and fully gripped with fear and losses. Newspapers and experts will add fuel to the fire...
This is the time, the value hunters and institutional investors will enter the market. From whom will they buy ? Obviously from retailers who are gripped with fear of further losses. Retailers would just want to save what they have and run for their lives.
The market will gradually move up after a lot of intermediary ups and downs. Still retailer confidence is low and fully suspicious. In due course, the market would then have moved up quite significantly in contrary to retail investors' expectations. Slowly, the confidence blossoms when market continues to make new highs. Here, some retail investors (Getting the news through newspapers and experts giving statements that the economy is blossoming and there is good upside potential) enter the market and make some money. This news spreads throughout and the general confidence of the retail investors increases and more people come out of their self-imposed exile and slowly enter the market.
All sorts of good news will flourish. People will get very excited and buy like as if there is no tomorrow and as if the price will never come down again. (Outside factor: Fueled by news and expert opinions; Inside factor: Greed for quick profits). From whom will they buy? From the value hunters and institutional investors who entered when the market was at the bottom levels. They would be excited to see the price go up after they have bought. But, this would only be temporary., as the major players who entered very low will exit at higher levels thereby initiating the free fall of the market. The Retail Excitement will be short-lived and soon confidence will again be lost, fear will grip and people run away from the market. And the cycle would resume again from the beginning...
So, to succeed in stock market, Dare to be Different (5%) and Don't go with the Tide (95%) !!! :-)
Happy Investing...
Selva.
I will primarily scribble :-) about my experience and try to make a bit of awareness among retail investors... :-)
Retail Myth:
While trading in stocks is the fanciest thing that anyone can get hooked to very easily, it is a fact that 95% of the retail investors end up losing money in the stock market. Only 5% of the investors (Probably by luck) :-) have made money or either making money in the stock market. (Probably only temporary) :-)
So, what does that mean? Is the stock market not for the retail traders/investors?., Perhaps Yes!! :-) Atleast not for warm-blooded people...
The primary reason for the failure of retailers is not lack of knowledge, not lack of information, not lack of money power, but greed & herd mentality!! Psychology also plays a very major role. (From my experience - will further elaborate in subsequent blogs). This is definitely not everyone's cup of tea. Only cold blooded people would love to stay in the market. :-)
Broad Stock Market Cycle & Psychology of a Retail trader/investor:
The market generally comes down very very fast and goes up very very slow. (Testing the temperament of the investors during the course of both directions.)
There is a phase when the stocks are available dead cheap but there are no buyers. (This normally happens after some blood bath in the market!). Market sentiment is very bearish. That is, the general sentiment and expectation is that market can go only one direction and that is downwards. There is literally no hope and people have lost complete confidence and fully gripped with fear and losses. Newspapers and experts will add fuel to the fire...
This is the time, the value hunters and institutional investors will enter the market. From whom will they buy ? Obviously from retailers who are gripped with fear of further losses. Retailers would just want to save what they have and run for their lives.
The market will gradually move up after a lot of intermediary ups and downs. Still retailer confidence is low and fully suspicious. In due course, the market would then have moved up quite significantly in contrary to retail investors' expectations. Slowly, the confidence blossoms when market continues to make new highs. Here, some retail investors (Getting the news through newspapers and experts giving statements that the economy is blossoming and there is good upside potential) enter the market and make some money. This news spreads throughout and the general confidence of the retail investors increases and more people come out of their self-imposed exile and slowly enter the market.
All sorts of good news will flourish. People will get very excited and buy like as if there is no tomorrow and as if the price will never come down again. (Outside factor: Fueled by news and expert opinions; Inside factor: Greed for quick profits). From whom will they buy? From the value hunters and institutional investors who entered when the market was at the bottom levels. They would be excited to see the price go up after they have bought. But, this would only be temporary., as the major players who entered very low will exit at higher levels thereby initiating the free fall of the market. The Retail Excitement will be short-lived and soon confidence will again be lost, fear will grip and people run away from the market. And the cycle would resume again from the beginning...
So, to succeed in stock market, Dare to be Different (5%) and Don't go with the Tide (95%) !!! :-)
Happy Investing...
Selva.
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