Page 434 - How to Make Money in Stocks Trilogy

304 BE SMART FROM THE START

cost at $35, you are following up your losers and throwing good money after
bad. This amateur strategy used in any individual stock could produce seri-
ous losses and weigh down your portfolio with a few big losers.
4. Not learning to use charts and being afraid to buy stocks going
into new high ground off sound chart bases. The public generally
thinks a stock making a new high price seems too high, but personal feelings
and opinions are emotional and far less accurate than the market. The best
time to buy a stock during any bull market is when the stock initially
emerges from a price consolidation or sound “basing” area of at least seven
or eight weeks. Get over the normal human desire of wanting to buy some-
thing cheap on the way down.
5. Never getting out of the starting gate properly because of poor
selection criteria and not knowing exactly what to look for in a suc-
cessful company. You need to understand what fundamental factors are
crucial and what are simply not that important! Many investors buy fourth-
rate, “nothing-to-write-home-about” stocks that are not acting particularly
well; have questionable earnings, sales growth, and return on equity; and
are not the true market leaders. Others overly concentrate in highly specu-
lative or lower-quality, risky technology securities.
6. Not having specific general market rules to tell you when a cor-
rection in the market is beginning or when a market decline is most
likely over and a new uptrend is confirmed. It’s critical that you recog-
nize market tops and major market bottoms if you want to protect your
account from excessive giveback of profits and significant losses. You must
also know when the storm is over and the market itself tells you to buy back
and raise your market commitments. You can’t go by your personal opinions,
news, or your feelings. You must have precise rules and follow them. People
wrongly think you can’t time the market.
7. Not following your buy and sell rules, causing you to make an
increased number of mistakes. The soundest rules you create are of no
help if you don’t develop the strict discipline to make decisions and act
according to your historically proven rules and game plan.
8. Concentrating your effort on what to buy and, once your buy
decision is made, not understanding when or under what conditions
the stock must be sold. Most investors have no rules or plan for selling
stocks, meaning that they are doing only half of the homework necessary to
succeed. They just buy and hope.
9. Failing to understand the importance of buying high-quality
companies with good institutional sponsorship and the importance
of learning how to use charts to significantly improve selection and
timing.