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02/05/2010 07:39:01 AM · #1 |
Quote:âMarkets will do anything and everything to make sure that most people will lose money, most of the timesâ.
One wonders, why most people lose money most of the times. This is so because Stock Markets are designed to be like that only! Stock Markets exploit human emotions in intelligent way devised by âSmart Moneyâ in an attempt to snatch away âDumb Moneyâ.
In stock market, the advice often given is that â Buy Low and Sell High. But retail investors (Dumb Money) repeatedly do exactly the opposite. âSmart Moneyâ is always the winner. How does it happen? What is the modus operandi? Letâs have a look.
1. Buy the stock at $100. Increase it to $200 within few weeks.
2. Increase it steadily to $210, 220, 230, 240 and 250 within next few months.
3. Now even $200 will appear to be reasonable price. Media reports would suggest public to buy on dips.
4. Reduce the price to $200. As if met with a godsend opportunity, âDumb Moneyâ starts buying. (Smart Money starts dumping at the same time).
5. Reduce the price to $150. Dumb Money will dump the stock, in panic. (Smart money will start buying)
6. âSmart Moneyâ again buys at $150 and increase it to $300, even before âDumb Moneyâ can gain senses! Dumb money (Retail Investors) do not gather the courage to buy. (There wife/s wont let them buy, even if they want to!)
7. And the cycle goes onâ¦
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02/05/2010 09:46:35 AM · #2 |
There is only one way to make money investing in stocks. BUY LOW AND SELL HI.
You need to decide of you are trading or investing.
If you are trading, then all the things you mentioned are relevant and your strategy either works or it doesnt.
If you are investing, they are all irrelavant. You would only buy a stock because its undervalued based on its current intrinsic value or earnings, or its fully valued but you expect its earnings to grow. You would sell a stock if the converse is true.
The markets themselves are not designed to do anything. Every trade has both a buyer and seller. |
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02/05/2010 09:58:12 AM · #3 |
Hmmmmm.... my daddy always told me "Buy land!!! They don't make any more of that"
Worked so far. :O)
Ray |
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02/05/2010 10:14:40 AM · #4 |
First of all, I believe people should buy based on companies / philosophies that they believe in. This is not a common feeling though. In fact, financial advisers almost always disagree with me. In my mind, the fact that people invest in companies they don't know-of or believe-in ruins the entire system.
Secondly, math IS important. As a "middle-class" person, It is always tempting for me to buy stocks that are at under $5 a share. The potential for return / reward is much greater the closer it gets to 0.00 since the front-end investment is smaller and the potential for the stock to double or triple is much greater (this sounds obvious but I don't think many people follow this).
Lastly, use your own judgment and don't risk more than you can lose. The volatility of the market can ruin lives - an no one seems to really know what will happen. I bought Ford when I they were at $1.46 per share ⦠I heard they we "going green" and were the top of the big 3 and would survive. "Mad Money's" Jim Cramer ⦠insisted "sell Ford", take your money and run!!! at $4.80. He was positive, not suggestive --He insisted. He was absolutely positive he was giving good advice.
It's at 10.66 now.
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02/05/2010 01:28:13 PM · #5 |
I posted this information in another thread regarding stocks some time ago.
Saw an interview a while back with Warren Buffet. His position and advice was that those with very large wealth, look for a 5% return over long periods of time (decades).
Those who chase and predict the buy low sell high, invariably don't do much better than 5% over long periods of time (decades). Therefore, long term strategies should be to invest with the goal of a consistent 5% return.
If one started young (age 16) and saved 5-10% of their earnings over 45-50 years and realized a consistent 5% return, they would do quite well in retirement.
Of course - someone has to win the lottery, but that does not make it a sound financial plan. |
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