The decades old problem of new Stock Market investors!
You have been hearing about a new stock which will make you rich. Today is the day when you will finally buy it. Even if you don’t have the money to buy the new stock, you are willing to sell your old stock which is not performing well. You wait eagerly for 9:15AM (market opening time) and as soon as the market opens, you jump in to sell your old stock and buy the new stock. You feel excited that you have made a good decision and will soon be rich!
But when you come back to check your portfolio at 3:30 PM (market closing time) you find that your new stock has crashed! To make matters worse your old stock is starting to perform well now. But how can this happen on the exact day you buy the new stock?
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Running after the Hot Stock
You hear this stock everywhere. You see it on TV, your friends are buying it and your office colleagues are giving you tips not to miss the opportunity of a lifetime. There are numerous stories around this stock such as “This company will have the best quarter ever” or “This company is signing so many new deals”. Soon enough retail investors (mostly newcomers) will be excited about the share and that’s exactly what big players want. Big players dump the stock and make tons of profit leaving all the worthless shares with the retail investors.
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Buying a stock after it jumped 50% in a week
This is similar to the first point where a stock has reached incredible amounts of Euphoria and has risen by a crazy amount in a short amount of time. To understand this, just ask yourself this question – If you have made 50% on your investment in a week what would you do? Pretty sure your answer will be to sell the shares and enjoy the profits. This is exactly what others do to you when you jump on a stock which has risen 50% in a week.
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Buying on the day of expiry
Options weekly expiry happens on Thursday every week and monthly expiry happens on the last Thursday of the month (unless a holiday has been declared). Expiry day is a special day where anything opposite can happen. Hot stocks can get beaten down and crappy stocks can rise depending on the positions taken up by big players. So, if you are looking to invest in a stock for a long time then avoiding the options expiry day can make a huge difference!
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Buying when the stock cycle has already reversed
A stock (and its sector) always moves in a cyclical manner. As an investor, our goal is to buy stocks which belong to an uptrend sector and sell stocks which belong to a downtrend sector. If a stock has been doing very well for a long time there is always a possibility for the stock to reverse its uptrend and go into a downtrend. This requires understanding of stock cycles to ensure that you buy a stock at an appropriate time.
Don’t know about Stock Market cycles? Learn it here!
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Bad luck
Maybe nothing is wrong with your stock selection. You also bought the stock at an appropriate price. It’s can be just bad luck!
Despite how people tell great stories about their successful investments which made them rich, the reality is that some luck is always required for any investment to pay off. So maybe it’s just your day off and you end up in a losing investment. Investing will always involve some losing battles. It is perfectly okay in investing to lose some battles to win the war.
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