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  1. #1
    Advanced Member
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    Default Buying in a Downtrend.

    Quote Originally Posted by tricha View Post
    Nothing like buying in a down trend, if u do your homework!
    Technically, Tricha, you would have to be classed as a slow learner! You make a habit of buying downtrending stocks and pay a very high price for your folly. Here is an example of the actions of people (not just you) that had "done their homework" and bought regardless of the fact that the stock in question was in a clear downtrend. We can all learn a lot from these ill-advised comments and actions.



    The posters here were so sure that they had assessed the fundamentals of this stock accurately that they were unwilling, indeed unable to accept that they had got it wrong. Some even bragged that they never used stop-losses! Month after month, their optimistic prognostications were crushed as the inexorable downtrend continued. They were in a hole but did they stop digging? No, they dug deeper, buying more and more, averaging down as the shareprice progressively collapsed. Throwing good money after bad. See how the posters influenced each other with their comments - threads like this become support groups for those that have all made the same mistake. The effects of "group think" are all too evident as they lead each other down the garden path.

    These "toxic" threads share many similarities and are quite easily identified. Here are a few pointers :-
    Watch for a preponderance of overly loyal extremely positive contributions.
    Any negative posters are "run off the thread".
    When negative posters are accused of "downramping" you can be sure that all objectivity has been lost.
    Look out for multitudinous "cut and paste" entries of scarcely relevant articles from the net.
    Beware of threads where anyone posting a negative comment is personally attacked.
    Dissenting views should be encouraged, not rubbished. We learn nothing from those that agree with us.
    Watch for comments on "ignorant" selling by institutions, techies etc - by people that think they know better.

    Typical key phrases :-
    I hope the price doesn't rise too much - I'm still buying.
    This stock is worth $xxx
    If it drops any more, I'm backing up the truck.
    I can't believe that the market has got this one so wrong.
    Have you noticed all those suspicious trades just at the close?
    I'm buying $1 for 50 cents.
    Why are you posting here if you don't hold this stock?
    Oh goody - the price has dropped. I can now buy more!
    The market is being manipulated by insiders.

    There are very important lessons to be learnt from disasters like this. In my opinion, the more obvious ones are :-
    (1) Don't buy stocks that are in a downtrend.
    (2) Don't buy without first setting a point at which you will accept that you have made a mistake.
    (3) When/if this point is hit, SELL. Immediately. You can always buy back when/if the trend reverses.
    (4) Never add to a losing position. Don't average down. EVER.
    (5) Be very careful not to get caught up in other peoples enthusiasm for a particular stock.
    (6) Meticulous calculations of a stocks "worth" are meaningless if the market disagrees with you.
    (7) Remenber, if your opinion is at variance with market sentiment, YOU are wrong, not the market!

  2. #2
    Member Snapper's Avatar
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    Default

    Thanks, Phaedrus, from one who has committed all of the above follies but has resolved never to do so in future!

  3. #3
    Advanced Member Entrep's Avatar
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    Default

    Great post

  4. #4
    Corporate
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    Very good post for those new and old. Cheers Phaedrus

  5. #5
    Dilettante
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    Default

    I second the above posters. Very good and helpful summary Phaedrus. I have made many of the "mistakes" you mention. But as long as we all live and learn I suppose. Thanks again for this and many of your much appreciated posts.

  6. #6
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    Thanks, indeed, Phaedrus!

    I've probably said this before but Phaedrus' posts are the best guidance I've had in over 40 years investing. I still make mistakes but they don't cost as much as they once did. Provided I stick to the discipline of course!

  7. #7
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    Excellent post, many thanks Phaedrus.

    Now, on a tangential but related matter (and feel free to reply via another thread if it seems too tangential): the security, or otherwise, of stop-loss (or other conditional) orders. I'm interested from hearing from those with more market experience (and hopefully also from some who have worked as brokers) as to how transparent these orders are within the broking firms (i.e. what limits are placed on access to them).

    An example: I had a disturbing experience where I had a conditional sell order actioned inappropriately by my broker. The disturbing aspect was that the buy order came from another client of my broker (i.e. it was an internal trade) and that the sp hadn't otherwise fallen to the level required to trigger the trade - i.e. the transaction was self-catalysing! A terse conversation with the broker ensued and I was told that the transaction was the result of human error and the trade was duly reversed.

    But it got me to thinking - who has access to read the database of stored conditonal orders and how do brokers prevent/track the obvious potential for serious abuse and manipulation of these orders?

    Any wisdom/insight appreciated ...

  8. #8
    Senior Member moimoi's Avatar
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    Voltaire, I believe your query is worthy of a new thread.

    Thank you Phaedrus.

  9. #9
    Member ENP's Avatar
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    The underlying business and the stock price are two different things.

    If the business itself is improving and you are happy to be invested in it, then you as an investor should much prefer lower stock prices.

  10. #10
    ? steve fleming's Avatar
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    Quote Originally Posted by ENP View Post
    The underlying business and the stock price are two different things.

    If the business itself is improving and you are happy to be invested in it, then you as an investor should much prefer lower stock prices.
    I generally agree. However, there are often industries/sectors going in/out of favour (or other market structural changes at a macro level) which will impact share prices long term irrespective of the business improving.

    But generally, in an 'ordinary' market, improving fundamentals will win out over the long term.

    In all my large multibaggers (EKMO - 50 bagger, CEOO - 30 bagger, AVBOB 20 bagger) I have increased my holdings through averaging down, buying into a falling share price. In each of these cases I assessed the downside risk as being very minimal and the upside substantial, so I continued to buy.

    This has helped to significantly increase my returns when the price has been re-rated.

    Its all about being smart about your investment decisions.
    Share prices follow earnings....buy EPS growth!!



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