Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Investing Mantra, Not to Convince, But to be Convinced

InvestorEducation / Learning to Invest Mar 10, 2011 - 03:13 AM GMT

By: Victor_Chan_Wai_To

InvestorEducation

Best Financial Markets Analysis ArticleThe most valuable mantra in investing goes by: “Not to convince, but to be convinced.” A good investor does not take unnecessary chances and then convince himself that everything would be alright. Rather, he would wait until the right opportunity comes by and convinces him that it is the choice to make. In other words, a winning investor always abides in stillness until a high-probability signal dawns on him.


Let the Winner Proves Itself

For example, a momentum investor refrains from buying a fundamentally sound stock until its price has broken out to a new high. The reason is that, whenever the price reaches the higher end of the range, short-term investors would anxiously sell for a quick profit, while the long-term investors would begin accumulating those shares just being sold. The price would finally succeed in breaking into a new high when there are no more sellers to push the price back down, i.e. all stocks are transferred from bears to bulls, which means that there is no more resistance against the price to go up, and this is the safest time when you can put your capital at risk.

If you buy a stock long before the breakout occurs, chances are it may remain going sideways or even plunge down later, because your analysis of the stock may not be correct after all, and you forgo better opportunities by sticking your capital with a loser. It is against human nature to give up a bargain, but it would be risky to buy under an unconfirmed situation. This is especially true if the current market is in a correction mode, which gives us more reason to wait for a properly formed breakout. This is why instead of trying to predict the future, we patiently allow the stock to prove itself, and buy at the proper time as indicated by a change in price and volume.

ASSUME = ASS U and ME

Therefore, instead of assuming what will happen, you should simply wait for the market to confirm what you are assuming. One of my favorite jokes on the English language is that, “The word ‘ASSUME’ spells ‘ASS U and ME.’” Most financial analysts make the mistake of assuming that they know a lot about the market, and make predictions that are wrong for 50% of the time. It is ego play instead of investing, and unfortunately the smarter the individual is, the more prone he is to fall into this trap. This explains why so many bright people, including those really knowledgeable professionals like Julian Robertson and Victor Niederhoffer, were blown up in the financial market simply by not admitting they were wrong when the market told them the truth.

A great investor does not assume that he can always be right in the market, and instead he knows the only one who is always right is the market itself. As legendary stock operator Jesse Livermore pointed out that the aim of the game is not about being right, but about how much you can make when you are right. Therefore the difference between the stock “expert” and the true winner lies in that, while the “expert” always has to appear confident, pour out myriad of theories of fundamental analysis and make calls on the market, the profitable investor, on the other hand, believes that he could never be smarter than the market, and let only the market, instead of anyone else, to tell him whether he is right or wrong.

The Lure of Omniscience

As Sherlock Holmes said, “It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.” All these troubles begin with the human urge to demonstrate omniscience by predicting events before they occur. It is almost like you would need to have an IQ of 200, the knowledge of a PhD, and some enormous insider information to make you successful in the market. As a result, you can see a lot of amateur investors spending a lot of money on expensive seminars to learn some obviously pointless methods like astrology, simply because it is too alluring to know how to predict the future. They do not realize that investing success is as simple as patience and humbleness.

The 80/20 Rule in Investing

To cure this, one must understand that the 80/20 rule applies in investing that, for most of the time, you simply do nothing. As Livermore warned, “No man can always have adequate reasons for buying and selling.” In other words, there are times when the correct trade is sitting in cash. Many otherwise profitable investors give back profits by overtrading, and they would surely benefit from the discipline of momentum investing by only buying on strength as proven by a breakout.

Livermore believed that timing was everything to a speculator, so that it is never about if a stock is going to move, but when. Although it seems quite obvious, many investors simply do not bother, as they would buy the stocks they want anyway, and wait for the move to play out, and hope that everything would be alright. The market may eventually move in the desired direction, but it may also not. It is simply not sensible to be exposed in the market before a confirmation, just to hope that it would turn out fine.

Summary

A good investor does not buy a stock and convinces himself it is correct. Rather, he waits for an opportunity to prove itself to him. The reason is that the market has its own cycles of profitable and barren periods, and the former is way less often than the latter. By not imposing one’s own logic and ego onto the market, he will be able to see the market as it is, and hence keeping the powder dry until the best opportunity presents itself. Unfortunately, conquering one’s own ego is the most difficult task in the world, especially for those who consider themselves more knowledgeable than average. Still, it is only after an investor has acquired this habit to “be convinced but not to convince”, he is able to make money.

By Victor Chan Wai-To

Selfgrowth Expert Page:http://www.selfgrowth.com/experts/victor-chan_wai-to

Victor Chan Wai-To is a currency trader based in Hong Kong.

© 2011 Copyright Victor Chan Wai-To - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules