Friday, August 29, 2014

Ignoring the comments of others

There is a famous story from several years ago about the CEO of one of the large US tech companies who used to sit for hours every day simply looking at his company's stock price. Quite why he felt compelled to do this, I don't know - why??? Sometimes I find myself asking the same question when people are in a frenzy on a message board or online forum about a particular stock.

These are places where a mixture of investors, traders, scalpers and others who like to discuss any particular stock or instrument. If you go on such a message board, you will come across people who use differing methods, but who all have the same goal - to make money.

What confuses me is when people who profess themselves to be investors start fretting about relatively minor price movements, especially when the price direction is going against them.

My definition of an investor is someone who has an understanding of the fundamentals in a company, and invests as they believe it is either undervalued, or that their will be significant increase in their valuation over time. Quite why these people therefore get in a tizzy over something a trader says about a stock is frankly a waste of time and energy. The only reason (in my own mind) why an investor would sell their holding is if the underlying fundamental reason for them holding stock in a company has materially changed. So why worry about a one day move against if your intention is to hold the stock for years???

These days I post rarely on such boards, having received my share of abuse in the past. I only ever post objectively when I have opened or closed a position. The reasons why are very simple - either a possible new trend has been indicated, or an existing trend has finished. No other reason. If that reason if different to yours, so what? If you believe in what you are doing, then what others do or think should be irrelevant.

Several years ago, I posted on a bulletin board that I had exited a stock purely on the basis that the trend had ended on my timeframe. I quickly got several doses of abuse from people who were supposedly long-term investors, including being accused of de-ramping the stock, so I could buy back in lower (!).  Clearly those people have no idea of what following the trend is. Yet they were more than happy when, a few weeks earlier, I posted that I had bought the same stock on the basis that I had identified that a potential new trend was underway ("Great that someone who follows technicals is now on board!").

At any point in time, there will be investors, traders, scalpers and shorters, option players and others who will be opening or closing positions in a particular stock. Of those, they will all have their own reasons for their trades or investments, along with differing reasons for getting out of their positions, be it on a fundamental or technical basis. Therefore, it is highly likely you will encounter people with opinions and targets which differ to yours. But that's good, as in a lot of cases they will be the people who have taken the other side of your position. So, if you have confidence and belief in your own method, then you can ignore the comments of others, knowing that you will make a profit in the long run.

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