Lessons learnt during a market crash

[3MT]

What I learnt is you gotta have an exit strategy with each trade. Buy and hope is not a strategy.

Learn to play the stop losses. Could be 5% could be 2% or 20%. It's depends on your trading style and stocks you buy.

You gotta understand the company you buy to some extent. by understanding you need to know its fundamentals (what they do, debt levels, cashflow, book value, capitalisation, earnings, PE relative to industry, PEG) and also its obvious support/resistance level (part of formulating your entry and exit strategy). You will see that companies with strong fundamentals will fall the least and/or recover the quickest and the others ... well many stay comatised.

Don't revenge trade (ie trying to make up for losses instead of trying to pick good stocks at good prices to enter) - you can't remove emotion. when its your hard earnt involve there's always emotion.

Don't trade the market. Trade the stock.

Don't think too macro. You gotta ask where is each pay day's super money going to? Unlike US, Europe have a unique situation in Australia, support from China and compulsory super. Some companies will be wiped out for obvious reasons (debt), but many will still prosper.

Find the prosperous ones and then share it with us all

 

[cordelia]

stop losses are important. If you wait it out it may take years fro your stock to recover to a break even point and inflation will erode the value. If you have bought at the top there will be plenty who have bought lower than you n the way down and are waiting to get out but at a lower price. It may never reach the price you paid for it and all the time you have no capital to snap up the bargains that will begin to emerge. Even the share you lost money in.

lesson: never buy a share without a plan for when you will sell it and cut your losses, take what's left of your capital so you can start over.

Also do plenty of research. Watch your investments..its all in the price not what is being said....

 

[marklar]

What tips can experienced ex-market-crash traders provide to us noobs to crashes?

Haven't experienced a true crash yet, unless you count the Year 10 commerce class "pick a portfolio of stocks and see how it does at the end of the year" in 1987, but...

1. Don't risk what you can't afford to lose (yeah, I know, too late if you're already over your head)
2. Don't try and second-guess your original reasons for buying a stock, it might make you alter your exit strategy & bite you hard
3. Trade to your plan (you did plan for the market to go down, didn't you?) and don't react to market sentiment
4. Learn something from your mistakes
5. There are safer ways to make a $, but they're not nearly as much fun!

Platitudes, yes I know, but it isn't rocket science (unless you're trading CFDs, I really should learn about them) ...introspection perhaps? Too much Remy XO?

m.

 

[Buffettology]

What I learnt is you gotta have an exit strategy with each trade. Buy and hope is not a strategy.

Learn to play the stop losses. Could be 5% could be 2% or 20%. It's depends on your trading style and stocks you buy.

You gotta understand the company you buy to some extent. by understanding you need to know its fundamentals (what they do, debt levels, cashflow, book value, capitalisation, earnings, PE relative to industry, PEG) and also its obvious support/resistance level (part of formulating your entry and exit strategy). You will see that companies with strong fundamentals will fall the least and/or recover the quickest and the others ... well many stay comatised.

Don't revenge trade (ie trying to make up for losses instead of trying to pick good stocks at good prices to enter) - you can't remove emotion. when its your hard earnt involve there's always emotion.

Don't trade the market. Trade the stock.

Don't think too macro. You gotta ask where is each pay day's super money going to? Unlike US, Europe have a unique situation in Australia, support from China and compulsory super. Some companies will be wiped out for obvious reasons (debt), but many will still prosper.

Find the prosperous ones and then share it with us all

Gold! The stop loss part I have only just learnt! Trouble is, next time I put in my stop losses, the market will suddenly rally (i.e. last correction) and I will be left out to dry!

I think I also learnt I need a crystal ball!

But Im comfortable with my portfolio for the long-term, just that I could have got some far better prices! Ah well, still got a bit of cash floating around to snap some up!

 

[Wysiwyg]

Gold! The stop loss part I have only just learnt! Trouble is, next time I put in my stop losses, the market will suddenly rally (i.e. last correction) and I will be left out to dry!

I think I also learnt I need a crystal ball!

But Im comfortable with my portfolio for the long-term, just that I could have got some far better prices! Ah well, still got a bit of cash floating around to snap some up!

Did big Warren use stop losses

 

[Buffettology]

Did big Warren use stop losses

Never read one he used! Though, I havent kept upto date with Birkshire investments as of late.

Maybe you could enlighten me?

Though, I have adapted my techniques somewhat from his, since long-run historical returns of a company are not as easy to come bye as they are in the US!

But yes, I concede defeat and though I value a stock and only buy once I think the price is right, I have definately learnt stoplosses can work when market sentiment turns into uncontrollable fear! Havent seen that in my 13 years though, maybe I should have been around in 87!

 

[Wysiwyg]

Never read one he used! Though, I havent kept upto date with Birkshire investments as of late.

Maybe you could enlighten me?

Nup can`t, but don`t think he would have.Buy and hold philosophy.

Though, I have adapted my techniques somewhat from his, since long-run historical returns of a company are not as easy to come bye as they are in the US!

BHP (being a good example) shows 2003 as the year s.p. growth (dividend?)made a meaningful appreciation.

But yes, I concede defeat and though I value a stock and only buy once I think the price is right, I have definately learnt stoplosses can work when market sentiment turns into uncontrollable fear! Havent seen that in my 13 years though, maybe I should have been around in 87!

Agree, one could hardly say that the decline wasn`t telegraphed.

 

[Buffettology]

Agree, one could hardly say that the decline wasn`t telegraphed.

The irony is I was one of those telegraphing it! I held about 70% of my portolio in cash anticipating it for most of last year, only buying and selling on some massive volatility and hence great opportunities came up. Though, then I became too greedy and dumped about 85% of my portfolio into the market.

You live and you learn, these things happens, life goes on.

 

[stockpanther]

korrupt - you're famous mate

http://www.news.com.au/business/story/0,23636,23093739-462,00.html


Gen Y gets its first taste of a meltdown

By Victoria Laurie and Anthony Klan

January 23, 2008 02:00am
Article from: The Australian

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WHILE Gen Y investors flooded sharemarket chat sites begging for advice on what to do, 32-year-old broker Ben Polkinghorne spent much of yesterday telling his clients to "hold tight" during the biggest market bloodbath in decades.

It was a different story in cyberspace, where the internet generation was reacting to its first taste of market meltdown. On sites such as HotCopper and Aussie Stock Forum, young bloggers who were losing big money by the minute were panicking.

"For f%%$$K's sake, a bounce must be coming? Maybe it is the end of the world," wrote one blogger on HotCopper, which claims to be Australia's largest stock market internet forum. Fellow HotCopper blogger "Rogues Trade" jokingly offered to hire a bus and drive it off Melbourne's West Gate bridge, offering "25 seats" to fellow distraught young investors.

"Oh what a terrible day, time for a Valium or something stronger," wrote another.

On Aussie Stock Forums, young investors were asking for the advice many baby boomer parents had been dishing out for years. "This is my first experience of having open trades during a crash, I missed the August 07 one (a minor correction) by one week," wrote korrupt1.

"I was wondering what lessons have people/traders learned over the last few crashes ... (and) what tips can experienced ex-market crash traders provide.

"Watching my investments' value decline is painful so I guess one way is to unplug the system and ignore it for a few days, hoping when I come back in a week (or a month), it will be allbetter."

 

[korrupt_1]

korrupt - you're famous mate

LOL... didn't expected that to happen!

 

[skating101]

Lessons learnt during a market crash:

Buy instead of sell as the Federal Reserve will always be there to bail you out hahahahaha

 

[Buffettology]

Lessons learnt during a market crash:

Buy instead of sell as the Federal Reserve will always be there to bail you out hahahahaha

ha ha ha ha ah ah ha ah aha.

 

[zt3000]

never short a stock after a massive fall in anticipation of further carnage despite what futures markets, ie Dow Futures show

ffs ... got majorly burnt this morning

bah

 

[Buffettology]

never short a stock after a massive fall in anticipation of further carnage despite what futures markets, ie Dow Futures show

ffs ... got majorly burnt this morning

bah

Ouch! Good you learnt that lesson!

 

[wintermute]

Well if I'd sold yesterday I'd be 5.5K worse off today. My stocks plummeted 7K yesterday but are back up 5.5K today... If I was inclined to sell, today would be a much better day... is it just a dead cat bounce?? Maybe!!! Certainly from corrections I've observed, you get a plunge, then a bounce when everyone thinks it went ridiculously low, then another plunge, then a heap of volatility for a few months. If you have the nerves you can swing trade that volatility, but you never can tell whether (or when) there will be another bounce.

Fundamentally I think this correction is a little overdone, blind panic about what people thought was going to happen in the US. The US have managed to prop things up for a tad longer and suddenly our market surges back.... You would think that our market would be able to trade on it's own merits, but apparently not.... Oh well Time is a great equaliser

Tony.

 

[tech/a]

What makes you think this is over?

I'm sure there will be more lessons learnt.

 

[Julia]

What makes you think this is over?

Let's see what the reporting season brings before doing too much celebrating.
I wouldn't be buying into this burst of enthusiasm.

 

[numbercruncher]

I think there is some good opportunity for long term investors out there.

Also plenty of gamble for those so inclined !

But your all correct, I dont think the fat lady has sung yet !

 

[saichuen]

That yesterday was a good day to buy and today is a good day to sell.

 

[dj_420]

I learnt to try and identify market movements prior to the crash. I had liquidated a lot before the correction in Aug, bought back in and sold most again arounf November. In hindsight I should have waxed the lot and shorted the shizen out of every indices possible.

I also learnt that even in bad times you have 1-2 days to get out, like this crash, it has been a slow motion train wreck, there was plenty of time until last two days to get out.

I also learnt to sell into strength on a bounce, massive short covering and euphoria this morning pushed the market up and smart money sold into the rise IMO.