May 6, 2011 | In: Opinion
Patience: A Virtue That Successful Stocks Traders Are Blessed With
I have written before on fear and greed, and how their negative consequences on the stock trader by distorting his judgment and upsetting his disciplined approach to trading.
Fear and greed, are of course, sins in any investor’s vocabulary. Patience, on the other hand, is a virtue. Patience will guarantee that you will make money all the time. Patient investors make money, impatient investors lose money.
You should be patient when buying a stock. When you feel the price is too high, regardless on how others feel about the stock, then maybe it’s too high. When all the fundamentals (low sales, high churn rate, increased competition, reduced forecast) point that a stock should go down while it is going up, then maybe it is not the right time to buy. Trading stocks is like playing a card game where nearly everyone cheats and lies about his cards, and there’s no way to tell, except by trusting your own research and feelings. Once you feel that the stock has reached a point where it’s acceptable to buy when taking the company’s fundamentals, and again, your own hunch, into the equation, then go ahead and buy. Buy 1/3 of your position, and then buy another 1/3 in a week or two, and finally buy the last 1/3 in one month or so.
Now that when you have the stock, when should you sell it? What if the stock goes down more? Let’s first clarify something, if every time every person buys a stock it’ll go up, then there will absolutely no one in this world (and I really mean it) who will do some real work. There is a chance that the stock will go down, and substantially down. Your stocks may lose 20% of their value in a week, or sometimes a day. But you’ve made your own research, you relied on your feelings to make the decision to buy the stock, your feelings never betrayed you. You can, of course, panic and sell, and this is how you will start fearing the stock market and leave it or good. Or you can wait for the stock to go up again, and it will go up, regardless of what others are saying. I remember nearly a year ago people were saying that APPL is doomed because of the antennagate and other problems, at that time the stock was trading at $240. The stock is trading at $348 today. It is not really rocket science to analyze Apple yourself and know that this company will never, ever experience financial turbulences, at least not in the next 5 years. Now the question is, is AAPL a good buy at $348. Maybe it is, it has a low P/E, and they’re still selling iphones and ipads like hot cupcakes, and they no longer have production issues so supply is able to meet demand. Would I buy at $348? My problem with Apple is that it’s a company embodied by one person, Steve Jobs (what if he leaves, or even worse…). But, some analysts say that the company will still do well without him. I think only time will tell.
Going back to you selling the stocks that you bought, well, you have to wait until the stock goes up, and anything in life has its ups and downs. No stock can go down forever, and no stock can go up forever.
Patience, my friend, is a virtue.
9 Responses to Patience: A Virtue That Successful Stocks Traders Are Blessed With
Top 10 Qualities of a Stock Investor « Fadi El-Eter
May 11th, 2011 at 3:02 pm
[…] He is patient: A successful stock investor doesn’t sell stocks when they go down, and doesn’t buy stocks when they go up. Instead, he waits for the right and calculated opportunity, and then he jumps in. If one of his stocks go down, he waits until it goes up to sell it. The question is, how can this investor not sell at a loss when everyone else is selling… This is because (read the point below)… […]
Contrarian Investing « Fadi El-Eter
June 13th, 2011 at 2:47 pm
[…] You can see from the above chart that there’s a cycle for HNU every month or so, it goes up and then goes down and then goes up, etc… Of course there seems to be an upward trend, but you shouldn’t care about this because you only buy when the stock is really down according to the trend and sell when the stock is relatively high, regardless of what analysts are saying about natural gas. This kind of trade will always work, as long as you blessed with the virtue of patience. […]
How Can Stocks Make You Money? « Fadi El-Eter
August 15th, 2011 at 9:07 am
[…] long term troubles and 2) choose the right timing and 3) keep a close eye on your stocks and 4) be patient and 5) never ever be […]
Is Stock Trading a Sin? « Fadi El-Eter
September 3rd, 2011 at 1:03 pm
[…] At one point, most people make money with their stocks, if they are patient and they don’t panic and they’re not greedy. Not selling at the right time is the […]
Stock Market Best Kept Secrets « Fadi El-Eter
November 17th, 2011 at 3:30 pm
[…] you?). You shouldn’t be afraid. Leave fear, greed for other investors and always be patient and […]
Canadian Stock Market Outlook 2012 « Fadi El-Eter
December 2nd, 2011 at 12:53 pm
[…] your portfolio, buy low – sell high, don’t trade with risk money, have patience, don’t be afraid and don’t be greedy, and you should be […]
20 Stock Market Lessons Learned for 2011 « Fadi El-Eter
December 5th, 2011 at 3:05 pm
[…] learned that patience is a virtue, especially when it comes to investing in solid companies with very large cash reserves such as […]
When to Dump a Stock? « Fadi El-Eter
December 12th, 2011 at 3:05 pm
[…] been resilient, you were not afraid and were not greedy, and you’ve been patient, but a particular stock that you own is making you lose a lot of money. You are now entertaining […]
Mika
June 25th, 2012 at 3:04 pm
In my small unique book “The small stock trader” I also had more detailed overview of tens of stock trading mistakes (http://thesmallstocktrader.wordpress.com/2012/06/25/stock-day-trading-mistakessinceserrors-that-cause-90-of-stock-traders-lose-money/):
• EGO (thinking you are a walking think tank, not accepting and learning from you mistakes, etc.)
• Lack of passion and entering into stock trading with unrealistic expectations about the learning time and performance, without realizing that it often takes 4-5 years to learn how it works and that even +50% annual performance in the long run is very good
• Poor self-esteem/self-knowledge
• Lack of focus
• Not working ward enough and treating your stock trading as a hobby instead of a small business
• Lack of knowledge and experience
• Trying to imitate others instead of developing your unique stock trading philosophy that suits best to your personality
• Listening to others instead of doing your own research
• Lack of recordkeeping
• Overanalyzing and overcomplicating things (Zen-like simplicity is the key)
• Lack of flexibility to adapt to the always/quick-changing stock market
• Lack of patience to learn stock trading properly, wait to enter into the positions and let the winners run (inpatience results in overtrading, which in turn results in high transaction costs)
• Lack of stock trading plan that defines your goals, entry/exit points, etc.
• Lack of risk management rules on stop losses, position sizing, leverage, diversification, etc.
• Lack of discipline to stick to your stock trading plan and risk management rules
• Getting emotional (fear, greed, hope, revenge, regret, bragging, getting overconfident after big wins, sheep-like crowd-following behavior, etc.)
• Not knowing and understanding the competition
• Not knowing the catalysts that trigger stock price changes
• Averaging down (adding to losers instead of adding to winners)
• Putting your stock trading capital in 1-2 or more than 6-7 stocks instead of diversifying into about 5 stocks
• Bottom/top fishing
• Not understanding the specifics of short selling
• Missing this market/industry/stock connection, the big picture, and only focusing on the specific stocks
• Trying to predict the market/economy instead of just listening to it and going against the trend instead of following it
Mika (author of “The small stock trader”)