MAKE PROFITS, NOT HEART AILMENTS
June 16th 2008 01:15
Things do go back to normal after the storm, don't they?
People invest to make profits and eventually live a better life. Well, at least, that’s what everybody hopes to achieve. Unfortunately, that’s not what everybody gets. While the lucky ones manage to realize their dreams sooner or later, the not so lucky ones just fall by the wayside. Sometimes, in even worse conditions than when they started.
Luck plays an important role in investing. But it is by no means the only determinant of success or failure of an investment. There are times when it is not even luck (or the absence of it) nor the market that causes an investment to fail, but rather, the investor.
To explain, let’s paint a situation wherein, despite good fundamentals, perfect technical analyses and positive numbers all pointing to a positive result, an investor still dumps his stocks because of some negative developments that may not have any bearing at all in the profitability of his investments.
Like what Louie said in her comment, it all goes back to fear and greed. What else can cause an otherwise level headed investor to sell a properly selected stock which has the right fundamentals but fear?
Fear can sometimes be very illogical – and very costly.
But the toll that it takes is not only financial. If we are not careful, it could overtax even our physical health. An investor who always worries about his investments can develop an ulcer and even heart problems.
The American Counseling Association in their website claims: “The result of chronic worrying can be an increased risk for heart attack and stroke by raising blood pressure and increasing blood clotting. Worrying causes the liver to produce more cholesterol, increases muscle tension (leading to headaches and back pain), can increase amounts of stomach acid (causing various gastric problems), and may even compromise your immune system.” Check out their site in this address http://www.counseling .org/Publications/CounselingC orner.aspx?AGuid=8ae690c8-e99 9-44cc-aa67-a119b66f74c3
A seasoned stockbroker I met a few months ago says the amount of money one has at stake, the harshness of economic conditions and the violence or the volatility of the market, seemed to be correlated with the amount of worrying one undergoes during uncertain times.
These are all too bad, but these are not without solutions. In fact, one of the solutions could be very simple. And what is that simple solution? Here: “Ignore the news.”
Let’s bring down those raised eyebrows, shall we? I agree that ignoring the news will not jack up the prices of your shares to their pre-subprime mess levels. But it will, at the very least, save you from chronic worrying.
I mix and match trading systems and try them on for size but I only retain those that works for me at any given time. The Sage of Omaha has quite a number of useful tips. For this particular discussion, I believe this one is a perfect fit: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” – Warren Buffet.
To me this simply means that when he buys the shares of a company he is actually buying a portion of the company which he believes has a good potential for growth. He is not buying the shares for price appreciation. He is buying them for their intrinsic value. It is not that easy to make a lot of money, so he is giving it enough time to earn substantial amount of income that can only be made over time.
And because he truly believes in the future and the fundamentals of the company, along with the management team running it, he doesn’t worry too much about the fluctuations of the price of its shares.
Besides, look at the way the market (the Dow Jones, at least) has fluctuated the past few days. It plunged by some 400 points, recovered towards the weekend, dropped steeply by another 200 points, skidded some more by about 165 points then recovered again towards last weekend.
If your heart will lift and sink with each and every one of those movements and just as violently, I have serious doubt if you will ever survive to enjoy your money.
I suppose choosing the right stocks at the right time and believing in our choices, despite the prevailing circumstances, could be one of the routes we can take in making profits while staying healthy.
Of course, there could be other ways, but it is not thru fear.
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