Post by oldman on Nov 17, 2013 7:33:58 GMT 7
When I was much younger, I had very little capital and like most newbies, I started as a speculator. I traded penny stocks in the UK and subscribed to newsletters on penny stocks. I knew very little beyond what the newsletters stated about the stock as I was clueless on how to read annual reports, let alone make sense of the financials.
Looking back, I was just riding the momentum of the stock. We did not have any online facilities then and the only way to find out about a stock was to wait for the monthly newsletters. Getting hold of annual reports was not easy as well. Hence, when the newsletters recommended a stock, lots of us will buy into the stock and create the momentum.... not knowing of course that someone else may have planned all these and were selling to us!
For a few of these stocks, I could read the trading patterns quite well and made my first pile of money through penny stock investing..... otherwise known as penny dreadful investing by one of my friends.
When I sensed that the market was toppish for penny stocks, I sold all my stocks and invested everything in a blue chip company called Polly Peck ( en.wikipedia.org/wiki/Polly_Peck ) . This company owned the Del Monte brand and I thought that this was a very safe bet. Well, it collapsed a few months after I invested and I then went back to trading the penny stocks. It took me many years to recover what was lost and it took much longer for me to revisit fundamental investing.
I realised later that I did not really do enough homework when I invested in Polly Peck. Even though I took the trouble of reading their annual report, I did not know what to look out for. I also did not know how to read the financials. It was then that I made the decision to teach myself business and accounting. I bought all the key textbooks on business and accounting and forced myself to read these. It was not easy as the content was very dry especially the accounting bit. Nevertheless, I persevered and over the following years, began to really understand how to read the annual reports.
If you are like me when I started in the stock market, it is likely that you will not have much money to play with. It is logical to start as a trader as you will want to multiply your money quickly. Fundamental investing usually takes a much longer time to generate decent returns. Actually, there is nothing wrong with being a trader when you are new to the stock market. Just that one must be aware that as his capital increases, he may be much better moving on to fundamental investing.
The good thing about being a trader in the initial years is that you would have learnt the art of trading which includes the art of identifying momentum and riding on these. You too would have learnt how to control your fear and emotions and recognise these in the market place and take advantage of these. However, as your capital grows, your bets will become bigger and bigger. Some people are able to control these bets and become great traders. For me, I am not able to as bigger numbers will keep me awake at nights!
Hence, as my capital grew, I moved towards fundamental investing and right now, I seldom engage in speculation unless it is just for the fun of it. However, given my earlier experience in trading, I do use technical charting as part of my entry and exit strategies. Also, I look at volume and momentum as well as supply and demand as these are all remnants from my past life as a trader.
Hyom, welcome to our forums. Always nice to see a familiar nick.
I agree with you. If I were to speculate, I will not want to know the fundamentals as this will cloud my vision, especially if the shares head south. I will find all kinds of reasons to keep holding on to the shares. I know because I have been there.
Nowadays, if I speculate, I will just look at the momentum. Most importantly, I will have a cut loss position. No ifs, no buts. Once the shares fall below this price level, I will sell. Not knowing the fundamentals will ensure that I will stick to this cut loss strategy.
Saying all that, I rarely speculate nowadays as I know that I make most of my money with fundamental investing instead. Reason very simply is because I dare to place large bets with fundamental investing as I am confident of my own analysis. I cannot say the same for speculation as the chances of winning is as best 50% and I don't like odds like this!Since tikam stocks have poorer fundamentals, only small bets can be made with them for proper risk management. So, one can end up monitoring too many tikam stocks in the portfolio. I guess tikam stocks are no longer worth your time as a few big fundamental bets takes up lesser monitoring time (maybe even lesser stress) than several small tikam bets. Still, a diversified portfolio of tikam stocks has its use. They keep one in tune with Mr Market's mood swings better than fundamental stocks which move more in tune to specific companies' conditions.
Looking back, I was just riding the momentum of the stock. We did not have any online facilities then and the only way to find out about a stock was to wait for the monthly newsletters. Getting hold of annual reports was not easy as well. Hence, when the newsletters recommended a stock, lots of us will buy into the stock and create the momentum.... not knowing of course that someone else may have planned all these and were selling to us!
For a few of these stocks, I could read the trading patterns quite well and made my first pile of money through penny stock investing..... otherwise known as penny dreadful investing by one of my friends.
When I sensed that the market was toppish for penny stocks, I sold all my stocks and invested everything in a blue chip company called Polly Peck ( en.wikipedia.org/wiki/Polly_Peck ) . This company owned the Del Monte brand and I thought that this was a very safe bet. Well, it collapsed a few months after I invested and I then went back to trading the penny stocks. It took me many years to recover what was lost and it took much longer for me to revisit fundamental investing.
I realised later that I did not really do enough homework when I invested in Polly Peck. Even though I took the trouble of reading their annual report, I did not know what to look out for. I also did not know how to read the financials. It was then that I made the decision to teach myself business and accounting. I bought all the key textbooks on business and accounting and forced myself to read these. It was not easy as the content was very dry especially the accounting bit. Nevertheless, I persevered and over the following years, began to really understand how to read the annual reports.
If you are like me when I started in the stock market, it is likely that you will not have much money to play with. It is logical to start as a trader as you will want to multiply your money quickly. Fundamental investing usually takes a much longer time to generate decent returns. Actually, there is nothing wrong with being a trader when you are new to the stock market. Just that one must be aware that as his capital increases, he may be much better moving on to fundamental investing.
The good thing about being a trader in the initial years is that you would have learnt the art of trading which includes the art of identifying momentum and riding on these. You too would have learnt how to control your fear and emotions and recognise these in the market place and take advantage of these. However, as your capital grows, your bets will become bigger and bigger. Some people are able to control these bets and become great traders. For me, I am not able to as bigger numbers will keep me awake at nights!
Hence, as my capital grew, I moved towards fundamental investing and right now, I seldom engage in speculation unless it is just for the fun of it. However, given my earlier experience in trading, I do use technical charting as part of my entry and exit strategies. Also, I look at volume and momentum as well as supply and demand as these are all remnants from my past life as a trader.
I agree with you. If I were to speculate, I will not want to know the fundamentals as this will cloud my vision, especially if the shares head south. I will find all kinds of reasons to keep holding on to the shares. I know because I have been there.
Nowadays, if I speculate, I will just look at the momentum. Most importantly, I will have a cut loss position. No ifs, no buts. Once the shares fall below this price level, I will sell. Not knowing the fundamentals will ensure that I will stick to this cut loss strategy.
Saying all that, I rarely speculate nowadays as I know that I make most of my money with fundamental investing instead. Reason very simply is because I dare to place large bets with fundamental investing as I am confident of my own analysis. I cannot say the same for speculation as the chances of winning is as best 50% and I don't like odds like this!
