Author: Ho KhinwaiKhin Wai is a Year 3 Banking and Financial Services student from the School of Business Management (SBM). He started his foray in finance in 2011 and has his roots in value investing. Archives
December 2013
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In our first-ever in-house article here at NYPIC’s website, we talked about what stocks actually are. We mentioned that they are more than just “trading counters” that you buy and sell at whim. Behind every stock counter, there is a business that operates every single working day, generating revenue and profit. As a person who focuses mainly on growth and value investing, you may realize that many of my articles are skewed towards understanding the business fundamentals behind each stock, instead of looking at indicators and trading strategies. However, I am not going to leave hardcore supporters of trading and technical analysis aside. In this article, both supporters of Fundamental Analysis and Technical Analysis can benefit from what I have to share with you today. We know how the stock market can run up and down every single day. We also know that these market fluctuations are fundamentally caused by the forces of demand and supply. If there are more people who wants to buy a particular stock than there are people who are selling the stock (Demand>Supply), the stock price will go up. And, the opposite is also true. But, have you ever thought of what goes on in the minds of these investors who buy stocks at that particular time, and those who dump stocks at the same time? Have you also thought about how some very few people are able to make tons of money from the stock market, while many others see their invested capital being flushed down the abyss of nothingness? One differentiator about the successful investors and traders is that they stick to their strategies like how a screw is driven into a wall. They stay calm and collective, and don’t get flustered over market movements. They understand the emotional impact a market movement can do to them, and they simply do what needs to be done (or don’t do anything at all), in alignment with their investing strategy. The stock market kind of like a battlefield that really tests your hardiness and mental strength, and those who do not waver amidst crises stay on top of the game. Once you understand that you will certainly face some psychological weaknesses during your investing journey, you can then move on to overcoming them. To overcome your weaknesses, you need to have FAITH in your strategies, and BE HUMBLE ENOUGH TO LEARN FROM YOUR MISTAKES if you realize something is not working or you aren’t getting the results you expected. “Well,” you say. “That seems easier said than done.” Exactly. This is the part where money is being made, and it does involve quite a bit of mental work. This is the turning point that differentiates successful investors and traders from the rest of the herd. Warren Buffett once quipped, “Success in investing doesn't correlate with IQ once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” I am personally invested in the stock market at this point in writing this article. I, too, have been dealt with the psychological effects that stock market gyrations bring about, and I succumbed to it. As a result of this folly, I have lost out in a few potential gains. The process of facing your weaknesses head-on is scary at first, but it is a necessary step to take if you want to be successful in investing. And, you can't complete it in one day. It is a learning process that takes time, effort, and staying invested in the stock market. It’s something that all investors must go through, as the value of what I say here will not be lasting until you truly experience it for yourself. Sometimes, you can actually avoid many of these follies made by investors in the past by understanding some of them in a field of study known as Behavioral Finance. We will be touching on some of these follies studied in behavioral finance in our upcoming articles, so stay tuned. Well, it has been a long article. As some say, with every experience comes a little bit of gold to take away. We hope you will have the unshakable faith to stick to your investing guns and know that you can either let market fluctuations break you, or make you stronger.
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