Peter Lynch shared his Ten Most Dangerous Things People Say About Stock Prices reproduced below. Even more than the points above, Peter’s good sense of humor came through when he discussed these old saws:
1.) “If it’s gone down this much already, how much lower can it go?”
2.) “If it’s gone this high already, how can it possibly go higher?”
some of the best companies grow for decades example: coca-cola, Hinduthan liver, ITC, Infy
3.) “Eventually they always come back.”
no they don’t – there are lots of counter examples
4.) “It’s only $3 a share, what can I lose?”
$3 for every share you buy
5.) “It’s always darkest before the dawn.”
Its also always darkest before it goes absolutely pitch black. Don’t buy a business just because price dropped and it is cheaper now
6.) “When it rebounds to my cost, I’ll sell.”
The stock does not know you own it! Don’t take it so personally Note: this comment is explained by the well documented psychological tendencies called loss aversion and anchoring bias which are talked about in Behavioral Finance. If you liked it at ten, you should love it at 6 so either buy more or sell
7.) “What me worry? Conservative stocks don’t fluctuate much.”
There is no such thing as a conservative stock – the average stock fluctuates between 50% to 70% from its high to its low price every year. There is a graveyard where all the “conservative” stocks get buried. Companies and businesses change!
8.) “Look at all the money I lost – I didn’t buy it!”
Don’t beat yourself up about the missed opportunities because it is not productive – when he managed the Magellan Fund, he almost never owned one of the 10 best performing stocks in a given year, but he did fine anyway.
9.) “I missed that one. I’ll catch the next one.”
Doesn’t work that way
10.) “The stock has gone up – so I must be right” or “The stock has done down – so I must be wrong.”
Technical analysis is not worth much. So many people like something at 20 and hate it at 12 – never made much sense to him. Peter’s fundamentals, like those of many other super investors are grounded in common sense and an understanding of human mis- judgments and failings.
How to Trade in Stocks by Jesse L. Livermore gives today’s trader a vivid glimpse into the history of technical analysis. Fortunately for those of us who read this book, our guide is Livermore and the glimpse we are afforded is into his mind and into his trading formula. How to Trade in Stocks was published in 1940 and was Jesse Livermore’s contribution to the world that had both made and lost him fortune after fortune. To describe this book as short would be accurate, but only as it describes its length, not its stature. Contained within the 90 or so pages is a myriad of trading experiences and stories described by Livermore. He exhibits no awkwardness when describing a blunder, nor is he bashful when making a point: “Never average losses. Let that thought be written indelibly on your mind,” he says to close a chapter.
Some of his rules include:
Always trade with the trend, along the line of least resistance.
Make sure all the factors are in your favor before you make a trade.
Stay with the leading stocks of the day Group action is a key to timing – Stocks do not move alone.
Don’t buy your entire position at once. Always have a stop before you get in a trade.
Never takes tips from anyone Never argue with the tape.
You should not be in the market all the time.
One of the things that helped me was that after a large successful trade, the author recommends taking half the profit out of the market.Put it away somewhere safe.
In Stock Market, You can be right for the wrong reasons or wrong for the right reasons. ~John Allen Paulos
The better the economy gets, the more the market should sell off. When is good news really bad and bad news really good.
Trade what you see not what you think. ~Anonymous.
Practicing the Golden Rule is not a sacrifice; it is an investment. ~Anonymous.
Secret of Making Profits in Share Market is Don’t trade the obvious
An investor without investment objectives is like a traveler without a destination. ~Ralph Seger
Most people are beat up by the market instead of beating the market. ~MARK T. HEBNER
The investor’s chief problem — and even his worst enemy — is likely to be him self. ~BENJAMIN GRAHAM
To invest wisely, it is necessary to become aware of all the temptations to behave foolishly.
Sometime, A long term investment is actually a short term investment that failed.
The market is weird. Every time one guy sells, another one buys, and they both think they’re smart.
Any intelligent fool can make things bigger, more complex and more violent. It takes a touch of genius – and lot of courage to move in the opposite direction. ~Ein Stean
Buffett gradually moves away from Graham’s ideas about buying cheap companies. “Maybe a good price for a great business was better than a great price for a lousy business.”
Sir Templeton, considered as one of the greatest value contrarian investors, always looked for great investment opportunities not only in theUS but also across the globe. A bargain hunter by nature never failed in his attempts of investing. He can be named as the principal of that school which teaches to ‘search for those companies around the world that offer low prices and excellent long term outlook’. He always believed that it was best to invest in companies that had been neglected by investors who believed in swimming with the tide.
A Value Picker and Believes in Fundamental Analysis:
Templeton was the one who advocated fundamental analysis in a big way. He was not at all in favour of technical analysis of stocks and preferred value investing based on fundamental analysis. He attributed much of his success to his ability of remaining disciplined and calm even during moments of crisis in any market. He always maintained decent distance from the herd of analysts and so-called experts and believed his conscience for every investment decision. His investment principle was: “If you want to have a better performance than the crowd, you must do things differently from the crowd.” Also he vetted the view of being an optimistic even in the gravest of any situation. He once remarked, “Invest at the point of maximum pessimism.”
Rather than acquiring second hand knowledge in the form of reports or results, Templeton always believed in what came directly from the source. He resided inBahamas, a calm and distant environment from the Wall Street, to be more lucrative than networking with Wall Street contacts who usually had limited information and were always in a habit of “selling” whatever little they know. Just to decouple himself from the so-called experts fraternity, Templeton spent the whole of his life inBahamas, miles away fromNew York. When he was once asked the reason for doing so, Templeton said, “ I have found that the results of investments for my clients have been far better here than when I had my office at 30 Rock feller Plaza. When you are inNew Yorkit is much more difficult to go against the herd mentality.” How great his personality was can be reflected from the fact that in spite of being a billionaire he never flew first class and most of the times drove his own car. Templeton was named one of Time magazine’s ‘100 Most Influential People under the category of ‘Power Givers’.
Poverty to Philanthropy:
John Templeton was born in the small town of Winchester, Tennessee USA on November 29, 1912 during his childhood family going through a phase of poverty and he him self struggled a lot to get a better education. John remained unperturbed by the conditions prevailed at home and continued with his studies. He joined theYaleUniversityon the scholarship and graduated in economics and topping the class of 1934. He then joinedOxfordas a Rhodes Scholar and obtained an MA in law in the year 1936. Destiny, mean while, was working out a unique plan for Templeton who found himself heading towardsNew Yorkto work in the stock market. During the early years in the market he worked as trainee with the firm called as Fenner & Beane, that later came to known as Merrill Lynch. The next year, Templeton co-founded an investment firm named Templeton, Dobbrow and Vance at a time when the world was in the middle of the Great Depression.
Templeton was a great philanthropist and established the Templeton Foundation to encourage religious thinking. A major goal of the Templeton Foundation is to provide monetary support for spiritual discoveries. It encouraged research into ‘big questions’ by awarding philanthropic aid to institutions and people who pursue ‘explorations into the laws of nature and the universe and try to find answers to questions about the nature of love, gratitude, forgiveness and creativity’.
He was once quoted saying, “We are trying to persuade people that no human has yet grasped even 1% of what can be known about spiritual realities. So we are encouraging people to start using the same methods of science that have been so productive in other areas in order to discover spiritual realities.”
On July 8th, 2008 Templeton died at the Bahamas due to pneumonia.