|
Most important is the idea that the stock market follows some major trend
most of the time; such a trend is defined by volume, momentum, and
breadth. Further, not every departure from that trend signals the
start of a new trend.
That may sound
obvious, but you'd be surprised how many investors think they have to
be wise guys to earn above average profits in stocks. Fact is, it's
more important not to make any errors. Based on Dow theory and other
basic technical principles, here are the five colossal mistakes you
should avoid:
Don't overgraze. Since investors make the biggest profits by riding
major trends, it's self-defeating to buy and sell any more often than
absolutely necessary. Most moves that appear to be changes in the
primary trend are actually secondary trends you can ignore. An
investor who bought stocks at the bottom in 1982, for example, could
have held them right through the '87 crash and the 1990-91 bear market
without any great cost.-to them
Dow has risen more
than six fold over that last few years.
Don't jump the gun. You don't have to buy at the bottom and sell at the
top to make money in the stock market. All you need to do is catch the
middle part of the important trends. In fact, your biggest danger is
buying too soon. Often you can anticipate a rebound in a stock or a
recovery in the overall market
TECHNICAL ANALYSIS
But if you
invest before there is clear evidence that a come- back has started,
you can easily end up sitting with dead money for six months or even a
yean-chat takes a far greater toll on your compound rate of return
than you Knight imagine.
Don't expect
the stock you own to be an exception. Three out of four stocks rise in
a bull market and nine out of 10 fall in a bear market. Moreover,
divergences are usually a sign that a bull market is breaking down. So
if you own a stock that is continuing to rise when the rest of the
market has turned down, be careful. While a handful of issues are
exceptions that can swim against the current, most of the time stocks
eventually get drawn into the trend for their industry groups or for
the market as a whole.
Don't worry too much
about short-term moves. Almost everything that happens to a stock in
the space of less than a week is insignificant. There are a few
obvious exceptions, of course. For example, an extraordinary one-day
price jump on heavy trading volume may well be a sign that a major
news story is about to break. Nonetheless, if you buy blue-chip stocks
for the long term and read the news stories on your companies that
appear in financial publications, you actually wouldn't need to check
your stocks more than once a week-or even once a month.
Don't fight the tape
Originality and high
spirits are not big pluses when it comes to investing. Success with
stocks depends on more homely virtues such as patience and humility.
To win with stocks, small investors should wait until a bull market
appears to have started, buy high-quality issues, and ideally hold
those stocks for the entire move. In fact, the secret to making money
in the stock market is longevity Buy some stocks- preferably when you
are young-and hold on to them. Or, to paraphrase Woody Allen: Ninety
percent of investing is just showing up.
Computer Power in Investing
In the world of
personal popular subjects for software and on-line services. At the
simplest level, you can check stock quotes and news stories on
companies that interest you through leading on-line services. But
that's only the beginning. You can also trade stocks with discount
commissions, manage your own portfolio, analyze specific companies,
and track market trends-all with an ordinary personal computer.
More than a dozen
software packages (typically costing less than $75) allow you to buy
and sell individual stocks. Leading discount brokerages-including
Charles Schwab, Fidelity, and Quick & Reilly-have their own versions
of this software.-these packages, as well as software by some
independent producers, generally operate through one or more of the
on-line services.
In addition to
software for buying and selling, programs are available for managing
your stock holdings (as well as bonds, mutual funds, and so on). Among
their functions: updating all your stocks to current prices', keeping
track of dividends and interest; recording commissions; and figuring
your portfolio's overall value. Many of these software packages will
also help you with more complex calculations, such as analyzing your
asset allocation or monitoring the performance of the various stocks
you own. Such software ranges in cost from as little as $40 to more
than $200. More than a dozen such technical programs are available
that are aimed at small investors. |
