Buying in a Downtrend.

[Phaedrus]

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!