27 August 2011

Stock Investment: The Reason of Panic Sell or Buy and How to Overcome them

The only reason that makes people panic sell or buy is – Greed.

Panic Sell
People who panic sell because they do not want to miss the “chance” to buy-back later with lower price to earn more profit.

Panic Buy
People who panic buy because they do not want to miss the “chance” that the growing market price will keep growing and there always got “other” people who willing to buy from them with higher cost (market price).

In fact, greed will affect our emotion. Greed always affect the EQ of people and causes them make the biggest mistake in investment, that are, fear and over-optimistic.

Fear of missing opportunity to get more profit. Too-optimistic based on the trading volume and market price. The higher, the better?

1. Control your EQ. Let your IQ and intelligent beat your EQ and work for you.

2. The buying price determines your investment performance. The lower, the better.

3. Always review and manage your investment to cash ratio. Making an appropriate adjustment for worst-case scenario is a way to make you more rational. For me, the worst case is two years economy recession. Therefore, we must make sure the company we invest will pass through the recession and give dividend during the period of time (Better than Fixed Deposit). In other words, the business should be sustainable and the products or services of the company should be demanded even during recession.

4. Knowing the intrinsic value of the company you are going to invest. Although there are lots of ways to calculate or estimate the intrinsic value of a company, the bottom line is to find out what is the price will cause its competitors to acquire it. Yes, as an investor, we should have the thought of business people. Is the price attractive? If yes, buy it, no matter now is the so-called “Bear” or “Bull” market.

5. Don’t try to predict the bottom of the market. No one knows it. Therefore, why don’t we spend more time to learn how to assess the intrinsic value of a company?

Remember, only buying a right company at a right price will let you get profit in stock market, ultimately.

Is now the time to enter the market? I do not know. But I do know that as long as I can find a right company with a right price, I am going to own it; and vice versa. That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia


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