Tuesday, 15 March 2011

Failing the tango... the stop-loss logic

I have failed in my stocks lesson... Despite still remembering what Mr Hu Li Yang said from Money Weekly and what I wrote in my previous entry - Knowing when to 'breakup' with your stock.

Stop loss at 10%, stop loss at 10%, stop loss at 10%... darn.

Bad news (market, earning growth...), multiple "black crows", issuance of bonus shares, issuance of rights and other technical indicators are some signals of imminent price drop.

However, many of us are over-confident in our stocks. It is not easy to let go - belief that the stock will rebound, fear and greed are some emotions that over-ride our rational decisions. Then you realized it all when it's too late. That is when a stop loss becomes a cut loss.

To sell at 20% gain or do a selling up to gather slow profits. That is the 2nd part to the lesson - knowing when to sell.

Harvesting is just as important as sowing. We should bear that in mind when we invest. We don't invest with the hope of capital loss, we invest with the hope of capital appreciation. It is also with that that we can get GROWING dividends. We want to pick the right stocks just like picking the right seed to plant, then watering/ monitoring it regularly, then harvest before it starts to rot.

It really takes years of skills and experience to do as what Uncle8888 says:"Make hay while the sun shines and also pull out the weeds."

My tango seemed to be one-directional thus far. :(


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