This time everything's different...NOT

[MichaelD]

Conditions such as the ones we are currently experiencing are not new. This time it's sub prime/credit squeeze/whatever label one wants to put on it. Before it's been tech stocks, tulips, Poseidon, the South Seas Company. Doesn't matter.

People react the same way; greed on the way up and fear on the way down. People make the same mistakes;

Mistake 1 - catching a falling knife
1. Centro's a bargain at $8.
2. Centro's a Bargain at $7.
3. Centro's a BARGAIN at $6.
4. Oh ****, Centro's at 40 cents

Mistake 2 - not protecting your profits
1. Get into ACB at $0.30
2. ACB peaked at $2.20
3. ACB down to $1.50. It was $2.20, it'll recover.
4. ACB down to $1.00. It was $2.20, it'll recover. I think.
5. ACB down to $0.50. Oh why oh why didn't I sell it when I had a decent profit on hand.

Trading profitably is really, really simple.

Cut your losses short.
Let your profits run.

There are lots and lots of ways to achieve these simple goals. Unfortunately, the vast majority of traders/investors don't because even though the rules are really, really simple, they are really, really hard to stick with.

It's times like these when the truth of the rules really shines through.

 

[Timmy]

Mistake 1 - catching a falling knife
1. Centro's a bargain at $8.
2. Centro's a Bargain at $7.
3. Centro's a BARGAIN at $6.
4. Oh ****, Centro's at 40 cents

Good post MichaelD - I lol'd at the Centro example!

Very telling that you have Hitchcock in your avatar - he knew it was all in the mind.

 

[Smurf1976]

For the fundamental investors there's another one.

Has the business changed?

If XYZ's business was growing at 100% p.a. last month and nothing has changed except the share price going down with the rest of the market then that may provide an opportunity to exit and buy back in cheaper. But it doesn't change the fact that if you're genuinely in it for the long term then you own part of a booming business.

Likewise if the business is going bad then you want out even if the share price isn't yet reflecting that change.

For my oil stocks it's pretty simple.

Are the fields still there? Yes.

Have reserves been downgraded? No.

Has anything happened to disrupt production? No.

Has there been a major oil discovery or fall in demand? No.

And so I see it as no different to a shop having a sale. I didn't sell my TV because Myer had them at a discount 3 weeks ago. Indeed I bought it at that discount price - it's the same TV it was a week earlier but selling at a lower price. Likewise I'd buy long term shares at a discount rather than pay full price - but only if I was pretty certain about the underlying business remaining sound.

 

[Awesomandy]

Mistake 1... That is very true. I've seen quite a few people trying to catch a falling knife before. Most of them get pretty nasty cuts, I would say. I lost around 40% of my money in a trade before from making this mistake. Although, I think I've got this base cover nowadays. I was saying that CBA is a good buy at under $60 just last week. It's now $49. Ah well, at least I didn't try to catch it. As they say, never buy at the bottom. It's generally a much better to get in again AFTER the new up trend has been established. So, if I went in at $58 or $59, I would be down $10 per share now...

Mistake 2... This applies even if it's a big chip stock. I made an unreliased gain of 15% in an ASX top 50 stock shortly after taking a long position, and then it lost all of its gain. Luckily, I had the sense to sell it then, as it is now about 20% lower than what it was. Nowadays, I set proper and realistic price targets (and also stop losses) for every position that I take. When the targets hit, I set a new price target and also a new stop. Of course, I hardly ever sell at the very top, but I still have most of my profits intact when I close out my positions.

 

[Wysiwyg]

Conditions such as the ones we are currently experiencing are not new. This time it's sub prime/credit squeeze/whatever label one wants to put on it. Before it's been tech stocks, tulips, Poseidon, the South Seas Company. Doesn't matter.

People react the same way; greed on the way up and fear on the way down. People make the same mistakes;

Mistake 1 - catching a falling knife
1. Centro's a bargain at $8.
2. Centro's a Bargain at $7.
3. Centro's a BARGAIN at $6.
4. Oh ****, Centro's at 40 cents

Mistake 2 - not protecting your profits
1. Get into ACB at $0.30
2. ACB peaked at $2.20
3. ACB down to $1.50. It was $2.20, it'll recover.
4. ACB down to $1.00. It was $2.20, it'll recover. I think.
5. ACB down to $0.50. Oh why oh why didn't I sell it when I had a decent profit on hand.

Trading profitably is really, really simple.

Cut your losses short.
Let your profits run.

There are lots and lots of ways to achieve these simple goals. Unfortunately, the vast majority of traders/investors don't because even though the rules are really, really simple, they are really, really hard to stick with.

It's times like these when the truth of the rules really shines through.

That`s interesting.I know nought about ACB but what will the price be in 1 or 2 years from now?

Holding for the CGT discount can be disastrous if things turn pear shaped in the last few months of the 12.(i.e... the POG starts downtrending with, as history shows below, a long time between peaks) taking your gold stock with it.

p.s. not saying this is happening now, just an example.