Post by oldman on Feb 27, 2014 10:08:14 GMT 7
Your First Million, 2nd Edition
Chapter 3: The Players
Money drives our stock market. If you have lots of money, you have the ability to encourage prices to move the direction you want. After all, the market is about supply and demand and if you have the money to suck up the available supply, the share price is more likely to rise. Strong hands are people with money.
On top of money, strong hands usually have patience. If strong hands want to buy, they usually don’t like to have too many passengers on board. Hence, before they buy, it is more likely that they will want to push the shares lower. As the shares go lower, those with poor holding power will start wondering whether they should cut loss.
Those with poor holding power are the weak hands. When the share price drops 10-20%, weak hands are likely to sell to the strong hands. If the price falls further by 30-40%, those weak hands that have been holding will soon have weak legs as well and they are even more likely to sell.
These weak hands then lose money and start licking their wounds. If the strong hands are keen on the stock, you can bet that they are accumulating at the expense of the weak hands. When the strong hands have collected enough, they use their financial clout to buy up whatever shares the sellers have left. As the supply of stocks dry up, the share price is most likely to escalate upwards very quickly.
The weak hands who sold at a loss will then start regretting their decision to cut loss. Some will start buying back at much higher levels. Others will buy at even higher levels, as they are afraid of missing the boat. What many of the weak hands may not know is that the strong hands are now selling back to them.
When selling by the strong hands is completed, the share volume may dwindle significantly. Market interest in the stock dies down. The stock price slowly edges downwards, leaving the weak hands holding the baby. Sometimes, the strong hands will help the market downwards by shorting the shares and making on the downward path as well. Strong hands may even repeat the cycle again and make money on the way up too.
When you invest in the stock market, it is always useful to know what kind of hands you have. If you have weak hands like most retail investors, know that there are usually strong hands around and you have to be extra careful about how you read a stock direction, as the involvement of strong hands can affect the stock chart.
Hence, it is important to take your time to identify your fundamental stocks. Ideally, you should have a good margin of safety so that if these shares fall in value, you will have the stomach to hold on to them or even buy more in order to average down.
Of course, if the fundamentals of the stock change, it is a different matter. In such circumstances, I too may be a seller. But if the fundamentals remain unchanged, be prepared to hold on or buy more. Fundamental investing is OK, even if you do not have strong hands, but you must certainly not have a weak heart.
Chapter 3: The Players
Money drives our stock market. If you have lots of money, you have the ability to encourage prices to move the direction you want. After all, the market is about supply and demand and if you have the money to suck up the available supply, the share price is more likely to rise. Strong hands are people with money.
On top of money, strong hands usually have patience. If strong hands want to buy, they usually don’t like to have too many passengers on board. Hence, before they buy, it is more likely that they will want to push the shares lower. As the shares go lower, those with poor holding power will start wondering whether they should cut loss.
Those with poor holding power are the weak hands. When the share price drops 10-20%, weak hands are likely to sell to the strong hands. If the price falls further by 30-40%, those weak hands that have been holding will soon have weak legs as well and they are even more likely to sell.
These weak hands then lose money and start licking their wounds. If the strong hands are keen on the stock, you can bet that they are accumulating at the expense of the weak hands. When the strong hands have collected enough, they use their financial clout to buy up whatever shares the sellers have left. As the supply of stocks dry up, the share price is most likely to escalate upwards very quickly.
The weak hands who sold at a loss will then start regretting their decision to cut loss. Some will start buying back at much higher levels. Others will buy at even higher levels, as they are afraid of missing the boat. What many of the weak hands may not know is that the strong hands are now selling back to them.
When selling by the strong hands is completed, the share volume may dwindle significantly. Market interest in the stock dies down. The stock price slowly edges downwards, leaving the weak hands holding the baby. Sometimes, the strong hands will help the market downwards by shorting the shares and making on the downward path as well. Strong hands may even repeat the cycle again and make money on the way up too.
When you invest in the stock market, it is always useful to know what kind of hands you have. If you have weak hands like most retail investors, know that there are usually strong hands around and you have to be extra careful about how you read a stock direction, as the involvement of strong hands can affect the stock chart.
Hence, it is important to take your time to identify your fundamental stocks. Ideally, you should have a good margin of safety so that if these shares fall in value, you will have the stomach to hold on to them or even buy more in order to average down.
Of course, if the fundamentals of the stock change, it is a different matter. In such circumstances, I too may be a seller. But if the fundamentals remain unchanged, be prepared to hold on or buy more. Fundamental investing is OK, even if you do not have strong hands, but you must certainly not have a weak heart.