In any case I stand accused of writing a blog that gives practical advices and best money making stocks, yet I cannot deny the proliferation of so many internet and seminars that offer courses that promises big and easy money. Unfortunately, most will focus on only one aspect of trading, i.e. Method of Stock Selection. Of course, it’s the most important to most of us. That is a infallible fact we want to be right and to be boastful and say we are right about the market. “I am a successful stock trader”. “My selected stocks went up and how can I lose money?” And when we made money, this is exactly like the pyramid scheme, we make so money on the way up, we became blind. We expect a similar ride down and we think, we can get off say 20% off the highest peak. Very true description and completely logical thinking. Unfortunately the market doesn’t know as much like you, it does not happen that way. It doesn’t care and it has a mind of its own. Many a top trader is just like Holland got into the World Cup Finals recently and when it falls, it’s a mighty fall!
Stock selection methods are too numerous to list here but few can claim to be worthwhile and can be applied repeatly. Next blog I will share my recent discovery.
Some traditional methods, i.e. Dollar Averaging i.e. buying on regular intervals without looking at the price. Yeah it works if the market is rising; try doing that on the down and you will get serious doubts! As you are multiplying your losses! Another method is CANSLIM or How To Make Money In Stocks
as expounded by William O’Neil and it is good for anyone. An0ther favorite is from the Armchair Investor
or the Motley Fools.
They all work but needs commitment of time, resources and hard work.
We would love and imagine our stock selection is such that 8 out of 10, you were right! But even if true, we still lose money. That 9th stock will sink you when you least expect it. Because by that time, your head’s so big, you bet all your winnings and your biggest bet expecting the biggest paycheck, you end up like biggest fool! Unbelievable but true and this repeats itself again and again. Unless you have the Right Mind-set.
The Question is say, your stock selection has turn up a winner stock, do you dare to bet a million-dollar on it? Especially if that money is rent money, money you cannot afford to lose. That’s the first test of your stock selection. Next is if you have put down the bet, can you sleep soundly. Can you go on your daily routines, if the stock’s falling or rising? Can you quiet your mind and act as if nothing’s happening? This is the ultimate test of the 2nd phase, your mind-set. If you can perform the 1st and 2nd, good, you are ready for the third and final phase. What do you learn from it so that you can repeat your formula to make a profit again and again?
In my writings I always mentioned the 3 aspects of trading and first is about trading ideas or decide on the stock selection method. The 2nd is paper trading and system set up and the 3rd and final phase is actual trading and kaizen up.
During that last phase, in the actual trading one finds small losses and if added up can be a torrential stream that is feeding the stock broking system, it reminds me of what someone told me about the race-course. Those thorough-bred horses, whose money is feeding them? What about the clerks accepting bets, the horse owners, the race-course and the gleaming aisle, seats and the chauffeured limousines? Whose money is feeding them? It reminds me, too, of the book, “Where Are The Customers’ Yachts?”
What a revelation! Aha! It’s you, stupid! You and I. Remember the recent hoo-ha about HFT, or high frequency trading? It’s a given fact that stock brokers only want you to trade and he wants that trade done immediately, preferable thru him. Whether you make a loss or win, it is inconsequential; he’s made the money when trading is done thru him. All he’s afraid is that you don’t come but then, there’s always a new batch of suckers coming in anyway, fresh graduates or fresh wind-fall moneyed individuals.
Hence trading is dangerous if you come in unprepared, you are entering the lion’s den. The world is littered with has-beens, suicides, poor stock investors; some smart enough to stay away, some loved the adrenalin rushes, some out to scam you but you made your own choice. Be the 5% or don’t come in at all! That means you gotta learn, pay to learn and then you are ready to join the greatest game on this planet and lived to tell the tale!
Happy Kaizen trading!