Investing lesson: greed and patience

There are two things investors or traders must learn. One is to control the greed instinct and the other is to be patient.

"You know, a professional gambler is not looking for long shots, but for sure money. Of course long shots are fine when they come in. In the stock market Pat wasn't after tips or playing to catch twenty-points-a-week advances, but sure money in sufficient quantity to provide him with a good living." - Quote from Reminiscences of a Stock Operator

This is particularly true for full-time traders who solely depends on speculating the market for a living. It is extremely important to preserve the capital. Cutting losses fast and letting the profit run is the basic rule that all traders must follow. Failing to keep to these rules are the main reason for the failure of many traders.

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Spanish Debt Issues

There is a lot of talk about Spanish sovereign debts recently. I came across a research paper which I think is very useful for me and wish to share it here. This is taken from www.fundsupermart.com, an online fund broker where you can purchase funds form various fund managers. This portal provides some research and comparisons and it is essentially a self service portal. From the chart provided, we can see that there is a problem for Spain to service their debts for the next 4-5 years if the debts are not re-structured. With this kind of risk, no sane investors would want to risk their money to buy Spanish bonds. They can only turn to European central bank for bail out. The blue arrow is a fictitious line I draw assuming re-structuring is going to happen. Essentially, they have to move the payment of capitals into next 5-20 years to be affordable. In addition to that, they can't make additional loans. This is just taking a very simplistic view of the situation. To have that hap...

How Serious Is Sub-Prime Home Loan Issue?

As a long term investor, you do not need to flee the market unless you are near to the retirement age (meaning, you are no longer "long term" in your investment). For many long term investor, they would say that the fundamental is unchanged. So, their stock valuation should not change. However, we must not be complacent about it. Fundamental do change when the market condition changes. That is the fact. How your stock will be affected depends on a few factors. The number one factor is whether the stock that you purchase is directly involved in the sub-prime loans. If they are, then the fundamentals of that company is changed immediately. The profit will be affected directly. So, if you are holding banking stocks, you may suffer loses. That amount will depend on what level of involvement your banking stock participates. However, if you are holding stocks of MacDonalds or Coca-cola, the impact to your stock will be minimal. You may see immediate price down but the prices will c...

Patience is important

Recently, I had missed out the opportunities to make a few thousand dollars due to impatience. In each of the 4 cases, I sold out just before the break out because the counters refused to move while I was holding over a week. That cost me to missed out over $6,000 of profits. I noticed that I had unfounded fear of tying down my capital and not being able to fully utilizing my capital for additional gains. However, the true fact is that I have 75% of my capital sititng there and waiting. So, there is no compelling reasons to sell my existing positions since they had not breached the stop loss point. This is an important lesson to learn. Be patient and committed. Trade with more conviction then trying to hit-and-run. Quote Eckhardt did not want the Turtles to worry about linear decreases in their accounts. The slightest exponential curve from a big trend would eventually surpass the steepest linear curve they saw while losing. Discipline, money management, and patience were the only way...

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