I do love some of Warren
However, there are some sayings linked with trading and investing that are rather less endearing.
When visiting the bulletin boards, one of the sayings that crops up frequently and does tend to grate is “Let the trend be your friend”. Now I am sure that this undoubtedly hails from a very successful trader, and perhaps somebody can enlighten me on the comments section, but what an absolute load of boll**ks! Perhaps it’s because it has been quoted out of context on the bulletin boards? I have no idea, but if you take this to its logical conclusion then share prices in an uptrend should continue to infinity and beyond, and conversely those in a downtrend will eventually reach zero. I can only assume that the phrase is linked with charting, and spotting an uptrend or downtrend early on, and then recognizing when the trend has reversed. It smacks of momentum trading, but it’s a bit unfortunate for those who jump on the trend just before it’s about to change direction!
I’m not a great fan of charts (just traces in the sand as far as I am concerned), but I do agree with Anthony Bolton that they can be useful in identifying entry points when buying. There do appear to be clear support and resistance points on most charts, and if you have done your research on a company, and its share price appears to be bouncing up and down in a range, then it can be worth trying to time your purchase at the bottom of the range. Of course this can be dangerous because the share price may not get back to its support point before breaking out. More often than not, I just buy at prices that I regard as cheap.
Another well worn adage is ‘sell in May then go away and don’t come back until St.Leger’s day’. I’ve often seen statistics that appear to bear this out, but as a stock picker in the UK
The old chestnut, ‘Don’t keep all your eggs in one basket’ is used in many areas of life, but is often used to advise investors to keep a diversified portfolio. However, when it comes to buying stocks, I prefer Buffett’s stance. He said words to the effect that you can keep your eggs all in one basket, but keep your eye on the basket.
I don’t think I’ve ever held more than 10 stocks at any one time, and whilst some may consider this foolhardy, fortunately it has worked for me, and I’ve managed to survive and prosper through arguably one of the worst bear markets in recent history. Perhaps I’ll come a cropper in the future, but for now I think I’ll stick with it.
If anybody is invested in Avanti Communications then the trend is certainly not your friend at the moment. As mentioned in a previous blog, it’s a share that is on my monitor chiefly out of curiosity. I note that the Directors are still buying shares, and it will be fascinating to see whether it’s ‘the trend’ or the Directors that know best?
Interesting MM. I might agree with some of that but the 'trend is your friend' has served me well. For instance, if a chart has been moving in a certain direction for a long time why would I think that me buying at a certain point is going to be lucky enough for the chart to change right at that point? I'm more inclined to let a chart bounce a bit before buying as at least that bounce is the start of something, even if it is a false dawn. I mostly prefer to buy a bounce that's on some significant news or a large seller clearing, or director buying or better still, the whole lot. I'd hazzard a guess that if you buy a share that has just continued to fall and you bought that just at random point because it looked cheap you would be less successful at catching a bounce than buying one that had started on some event like news, director buying etc. I think it just increases your odds that little bit. I think of it like a snow storm - if the snow is still falling heavily and you predict it it will stop in 10 mins you may well be right, but if you wait till you see a hint of brighter sky then you're more likely to be right, imo.
ReplyDeleteI've held too many stocks in the past - tho I've done rather well even through the recession, too many stocks dilute your gains as much as they restrict your fall. To do well with 40-50 stocks as I used to hold means a lot of work finding so many good shares - although some of those shares I am holding at any one given time would be short term trades so I'm never gonna get to 10 shares. Putting all your eggs in one basket and watching it carefully is all very well if you can empty that basket with ease when you see something bad. The problem is that if you invest in small caps they are very illiquid and a sizeable holding cannot always be liquidated into cash if you want too. Look at those stuck in MUBL - if they want to sell then selling 5k hits the price more and triggers more sellers - you can be locked in. I'm trying to hold as few a number of stocks as I can while feeling pretty comfortable that I could get out with reasonable damage limitation should one go bad. Even had you tried selling much higher, if you'd had a lot of those in your basket you're locked in.
CR
CR - It's always interesting to hear different perspectives. As the rather odd saying goes, "there is more than one way to skin a cat".
ReplyDeleteI'm surprised that you're not still posting on your blog, although I must admit it can be difficult finding the time.
Cheers.
Michael.