The PSEi closed down 13 points today to settle at 2,437.99. On a week on week basis we are up 68 points from last Friday's close of 2,369. At this point, the much hyped 4000 index level has converted many traders into forced investors. I wrote a five-part mini series before on the distinction between the two (i.e. trader vs investor). You may check the following links for each part.
Are you a stockholder or a stocktrader - Part I
Are you a stockholder or a stocktrader - Part II
Are you a stockholder or a stocktrader - Part III
Are you a stockholder or a stocktrader - Part IV
Are you a stockholder or a stocktrader - Part V
I have my own views on which one you should be. It's based on your personality, risk tolerance, available time and aptitude. The most important question is : Can you cut your losses when the going gets tough?
If you answered yes, then it's good. But that's just the first step. You also have to answer the following questions -
Can you be unemotionally attached to the stocks that you will buy?
Will you promise to follow your established cut loss point?
Will you promise to follow your trading system?
Will you also promise to be patient when in a bear market?
There are other questions in mind and it will always redound to three letters - Y-O-U.
As the poem goes, I am the master of my fate, I am the captain of my soul.
So if something goes wrong, it's not the stock market. It's not the other traders or investors out there. It's not your broker or the other brokers. It's not the speculators. It's you. When you put your money into a stock you think will go up, what are the reasons?
Oh, let me count the ways -
Speculation
Hot tip from (a) friend, (b) online forum, (c) broker, (d) relative, (e) a divine message
"Everybody's buying it, so why shouldn't I" syndrome
Business expansion
Business outperformance
Bullish pattern or formation seen in the stock chart
Whatever your reason for buying your stock, if that reason is gone, then why are you holding on to it? That's one simple question that even I tend to forget. That is why in the days spent that I was thinking about the market, I came up with a novel but unique perspective to cutting losses.
Last week, I ended with this note -
Although you don't have control over what is going on, what you have control over is ____. This is the power directors have.
What you have control over is what you see in the market - whether good or bad. What are the two verbs directors the world over scream when making a movie? One is ACTION. The other? Yes, you guessed right folks, CUT!
My friend, when you are a stock trader, you view the action on a boring screen that includes the ticker, the index performance, the volume review, and the stock quotes. This is the movie you are watching and it's in front of you whether it be a computer screen, a TV, or the trading floor. Since you are the director, if you don't like what you're seeing, i.e. your stocks' performance, what do you scream? CUT? And that! That is what you should do.
It's just three letters, but the sheer willpower to do that is formulated as follows -
CUT + Muslces + Guts - Emotions = CUT LOSS SUCCESS!
It will be difficult to do in the beginning. If you're already six months to one year into trading, and you still haven't done a single cut loss, I think you have to visit the nearest mirror and ask yourself if you are really a trader, or an investor.
If your personality is that of an investor but you still do trading, then you'll be burning your money faster than you can curse.
If your personality is that of a trader but you are investing, then you won't be maximizing your gains.
The most important thing is to determine what you want from the stock market and what you are if you are putting money into it. And if all signs show that you are a trader - and you can become a successful one at that - always remember, you're the director of the movie that plays out every trading day. At 9:30AM in the morning, it's ACTION. And in between that up to 1200PM, if you dont like what you see, say CUT!
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During the previous CAF, i made a gaffe. I said stay away from Meralco. My basis for that decision was due to the issues facing the company. I hope people were still able to make money when they thought beyond the issues and looked at the chart instead.
At least those who asked me about ATN aren't going to curse me this week. Hehe =p
I'm human, and so I do make errors in judgement.
Good luck to us next week!
P.S. This is weird. Today is Friday but my blog entry is published as a July 10 / Thursday entry. See you next week!
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