StockSastra

Ten Most Dangerous Things People Say About Stock Prices: By Peter Lynch

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?”

     Zero

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.

Market Round up:

Markets have been cooled off little bit after big rally for the entire settlement and march series is going to be most exciting month due to UP state election results and Union budget.

How to Trade in Stocks by Jesse L. Livermore

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.

Free download

Sayings on Stock markets – 5

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.”

Strategy for Trading :

Our Strategy for Trading : nOw5.07

Method: Nifty Option Writing 5.07

 We sell Nifty Strangles.

Why this?

Most of the times (almost 82% of the time) markets yields very good positive returns just by sitting with the positions. Only 9% of the time markets in bullish movement and balance 9% of the time in bearish movement, so the 18% of time this strategy gives very bad negative returns hence who follow this strategy need to be attentive and strictly implement stop loss rules to limit losses. Key to make money is to manage positions when they turned good or bad.

Advantages Of Short Strangle: 

1. Able to profit when Nifty stays in a tight trading range.

2. As this is a credit spread position, you are already paid your full profit the moment the position is put on. That reduces risk.

3. If the Nifty remains below the put strike price but above the lower break even the investor will still realize a profit.

4. If the Nifty remains above the call strike price but below the upper break even the investor will still realize a profit.

5. Since two different OTM strike prices are used, the stock can move in a wider range, hence chances of profit making are high.

6. If volatility is high when the position is put on, a drop in volatility after the position is put on can result in a profit.

7. Though delta & VEGA factors won’t favours us always theta favours 100% of the time. 60% of the time most of the technical factors work in favour of option seller.

Disadvantage Of Short Strangle:

One can lose more money if the Nifty swings/moves greatly in one direction beyond  either the upper or lower breakeven point. Because of this risk, the margin requirements for this strategy are fairly high.

To tackle the above disadvantage, implementing strict stop loss points to remove the loss positions at earlier stages. High margin requirement really is not a disadvantage for this method because high margins limits the total positions taken.

Summary:

We have developed and following just one Option Trading Strategy for trading in Nifty Index Options with an idea to generate mechanical returns irrespective of the market movements, whether markets move up, down or remain flat. Our strategy is never based on speculation or technical analysis and is independent of stock market movements and wild fluctuations. This strategy has been improvised for past 5 years by experience gained from years of trading experience by our team. This trading strategy has been so refined that the same consistently result in generating profits in the range of 36% to 52% on the capital employed per year. The structure of this customised option strategy is an intellectual property and the fine details of the same are not shared. However, this strategy is put to use while trading in the Client’s portfolios.

Benchmark: S&P CNX Nifty, any Diversified or balanced mutual fund scheme in India.