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What should proletarian investors do when stock markets are going down? Nothing! Avoid temptations and do “business as usual” June 14, 2006

Posted by deminvest in GCH, investment, investment strategies, Social investing, stock I own, stocks.
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When stock markets point down a bunch of strong temptations surge in a proletarian's panicked greedy mind.

1) Terror can lead me to sell like crazy. A new bubble may be on its way to burst. I could see my savings crushed into dust, so I sell sell SELL!

2) Greed can lead me to buy hunting for bargains. Yes, the same stock that I bought two weeks ago at 10 is now selling at 8. What a bargain! It has P/E 20% cheaper, it had dividend yield 20% higher. Hmmmm I can take advantage of the situation and wait till it rebounds. It has to rebound! It was a greed buy at 10; it is pure paradise to get it at 8… Let's buy a few more of those babies.

But 1) and 2) are both wrong, as I learned at my expenses. Real expenses of hardly earned few dirty dollars!

1) is wrong. If I sell like crazy, I turn my back on all my ideas (that I did have when I was buying same stocks at higher prices), I am sure to lose money and I am very likely to fall in the trap of a rebound. If stocks will point up again I will have my losses and no more desire to invest after such bloody losses. I know that I have invested in companies delivering good dividends or with special growth ahead of them. No reason to sell them now. All I need to do is collect my dividends and wait for the future to come bringing growth with it. We are hopefully not about to enter middle age. Are we?

2) Is even worse! It is almost impossible to buy at the minimum. The market can go down for days, weeks or even months. How do I catch the very day, hour and minute when the market is touching its minimum? I just can't, so if I buy today attracted by bargain greed… It is very likely that I will see the same stock that I bought today plunge even more. I will see a better bargain, with lower prices tomorrow and I may be attracted to buy even more… Until I exaggerate and maybe use some money that I may need next month… So next month arrives and I have to sell at an even lower price.

Buying stocks that go down compulsively is the surest way to ruin myself using the stock market as a suicide weapon.

At this point I really have to hope that you are a new reader of this BLOG… Because otherwise you have read my recent bog posts… and you will know that I did exactly what I am telling myself (and you my friend) not to do.

Ok Ok I admit it. It hurts my ego… Sometimes just because I am writing and you are reading I feel like a sort of Warren Buffet kind of guru… Which I obviously am not! I did mistake 2) the worse one. You can check on:

https://deminvest.wordpress.com/2006/06/06/asei-american-science-engineering-is-what-i-buy-today-because-i-continue-to-be-bullish/

https://deminvest.wordpress.com/2006/05/31/wb-wachovia-or-c-citycorp-when-it-is-time-for-proletarians-to-own-banks/

https://deminvest.wordpress.com/2006/05/23/gch-bullish-on-stock-markets-i-recharge-on-greater-china-fund-which-seems-a-bargain-now/

On all those posts I am reasoning (wrongly) that I should buy because a stock is becoming cheaper and it is a bargain and the market will rebound. But how on earth do I know that the market will rebound? Do I work at the Federal Reserve? No. I am just no Guru able to forecast what the market will do tomorrow!

In all tree examples above (you can check) the stocks have gone down more than 15% in a few days. Now I could be tempted to recharge again… But No. I will not be stupid again and will not do error 2) once more.

So what?  

 What should a poor beaten up proletarian investors who sees his savings fade with this (or next) stock market's decline?

The answer is: NOTHING.

Only great traders can take advantage to recharge. We, the people have to wait. The only thing we could possibly do is to plan a strategy which will start next month and which will allow us to invest a certain reduced amount of money on the stock market every month.

I am pretty sure that by using a few savings I can make and a few dividends that the stock I own will bring me, I will be able to invest $1000 a months on a stock of my choice during next 5 years. I will stick to that. I will also force myself to get a new stock that I don't own, to avoid the dangerous temptation to use my $1000 to recharge on some stock that I already have, but that I had got at higher prices. I have to have new ideas for the new scenarios and I cannot allow myself to use the old ones.

I will start selling something only when one (or more) of my stocks will recover so well that they become 30% higher than the original price I paid. 

Next posts will not be on what I am buying, because I am not buying anything till July. My post will be about which may be my candidate spot for my next month's $1000.

Proletarians of the world, let the force be with you, with me and with the Street!

Comments»

1. deminvest - June 14, 2006

Hmm In me selfish attitude I forgot to mention another good reason to avoid choice 1) ( Sell in panic).
the reason is that is we, the people, as many as we are starte selling in panic we will make the market tumble and the economy may follow, making all us more poor than we already are now. Selling in panic is not ony wrong, it is also selfish.


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