The stock market is like a battlefield. You should be very clear about who your imaginary enemies are – they are small stockholders like you. You must specifically look for their weaknesses, explore their psychology, understand their patterns of action, and then defeat them unexpectedly.
At this point, I can’t accept the reality: the stock market, like any other arena on earth, follows Darwin’s law of survival of the fittest and the law of the jungle. The most ferocious tigers here work in listed companies and Wall Street, and they can easily tear off large pieces of fresh meat from weak stockholders. The remaining bones are divided up by cunning jackals and agile vultures. The most pitiful are the civilians who work diligently, pay taxes, and earn money to support their families. They watch their pensions turn into steam bit by bit, but can’t think of any way to save themselves.
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However, there is no absolute fairness in this world. It was so in the past, it is so now, and it will remain so in the future. In the stock market, someone has to lose before someone else can win. If you don’t make money from others, others will make money from you. You’d better work hard to climb to the top of a listed company, or at least be an agile vulture, and never become a lamb to be slaughtered.
So, what are the common characteristics (or weaknesses) of small stockholders? How can we avoid being corrupted by them and possibly defeat them?
First, the vast majority of small investors do not do their own research and rely heavily on expert opinions in the news media. They basically trade stocks based on their feelings, which is highly speculative and very emotional.
I understand that many people do not have the time or interest to research stocks, so they want to listen to the opinions of experts and ask others to help them make decisions. But not doing research yourself is indeed a big problem. If you have more than one year of investment experience, you must have some objective understanding of the media and experts: not all experts and media reports are credible. The media may only quote the original words of the experts truthfully, but whether the experts’ opinions are correct, whether the experts’ research methods are scientific, and whether the experts’ words have other selfish motives, these are all things you need to think carefully. There is no harm in asking more whys. I don’t understand why many people can spend several weeks comparing performance and price when buying a car, but they are careless when investing in the stock market. Do you think there are no cunning car dealers in the stock market? Do you think that listed companies are all genuine and do not need inspection? Do you think those experts will definitely tell you everything and tell you where there are problems, and will not falsely report or conceal faults?
I hope everyone can spend more time studying the stock market, grasp the general direction, master a few basic skills (such as buying when prices are rising and not buying when prices are falling, and not taking risks all the way), and learn to look at a few important indicators, especially emotional indicators, because most people are very emotional, and you must do the opposite when they are extremely excited or extremely pessimistic, and never be like them. 3D Forecast will continue to publish some knowledgeable and skillful articles on the Internet to help everyone spend the least time doing the most effective research. Of course, you can disagree with our views, but you can’t have your own opinions anyway, and you can’t listen to others for everything. That’s what most small stockholders do. If you want to make a profit in the stock market, you must not be like them!
Another fatal weakness of small stockholders is not stopping losses. Almost everyone is stuck because they did not stop losses in time. Some believe that the stock price will rise, while others are reluctant to sell their stocks, but the result is the same: they are getting deeper and deeper into trouble. I have said in the “Three-dimensional Trend Investment Method” that stop losses should be implemented as a discipline. Only when you sell the losing stocks in time can you have the opportunity to make more profits for the profitable stocks.
Some people don’t stop loss, or don’t sell no matter how much they lose, because they think the stock market will rise sooner or later, “I don’t believe it, it won’t rise again after ten years?” This involves the question of how to view Buy and Hold (long-term holding), which I will discuss in detail with you in other articles. What I want to say here is, please think carefully, did you not intend to hold for a long time at the beginning, but had to change to long-term holding because you accidentally failed to stop loss in time? Do you feel that you are not a firm supporter of the long-term holding theory, but just find an excuse to be stuck?
Taking a step back, even if you believe in the benefits of long-term holding that Wall Street says, and firmly believe that the stock market will rise back sooner or later, and it really rises back to your cost price, but the long wait will not earn you a penny (not counting currency depreciation). Is there a better way to close the position first, and then use the remaining capital to earn returns for you, not only to make up for the losses, but also to make more money? I don’t need to say it, I believe you know that this can be done, and the sooner you stop the loss, the easier it is to achieve this goal.
However, what is even more difficult to understand is that many people not only do not stop losses, but also buy all the way down, because experts say that this is called Dollar Cost Averaging. Wall Street is really ruthless. In order to make small investors buy forever and continuously (otherwise how can it make money?), it has invented all kinds of traps. The Buy and Hold I just mentioned is one, and the Dollar Cost Averaging Method is also one: it educates small investors not to go in and out with the ups and downs of the market, as long as they invest regularly and in fixed amounts (or give money), they will definitely get returns. This is really a painkiller for people who don’t use their brains. They don’t even need to think about it. They pay hundreds of dollars regularly every month, which is more conscious than paying rent to the landlord. And they buy all the way down, under the euphemism that this will reduce the average cost. Yes, you bought at 100 yuan per share at the beginning, and now you buy more at 80 yuan, so the cost will not be reduced to 90 yuan per share? If you buy more at 60 yuan next month, won’t the cost be reduced again? You see other factories are working hard to reduce costs, you should do the same, it’s right to listen to me…
If you listen to him, you will be like most small stock investors, and become one of the 7 out of 10 people who lose money. Knowing when to stop loss and when to sell is an important factor that distinguishes you from most stock investors.
Another problem for small stockholders is that they are afraid to short sell. Some people have never heard of this, and some people are scared away by experts after hearing a few words: the risk of short selling is seriously exaggerated. Experts say that buying stocks can lose up to 100%, and there will be no money left in the end, but short selling can result in unlimited losses, “because the stock price can rise indefinitely.” Smart readers, think about it yourself, will this theoretical calculation actually happen in reality?
First, whether you are buying long or shorting, you must set a stop loss line. Without this protection measure, you will lose money no matter what you do, regardless of whether you are shorting or not. When you set a stop loss line, the only risk is that the stock price may jump sharply after the market opens one day, suddenly crossing the stop loss line you set, and never come down again. In this case, your stop loss order is invalid, and you don’t observe the stock market every day. When you suddenly wake up after many days, you may have lost a large part. But please think carefully, what is the probability of this happening? I don’t need to tell you the complicated theory that the gap will eventually be filled. You just need to count for yourself, how many stocks in a bear market, especially large stocks (I think you absolutely dare not short small stocks now) can jump up by more than 10% overnight and never come down again? I rarely see this phenomenon myself, but there are often stocks that fall 10% or even 20% as soon as the market opens, which is often seen in bear markets.
Many people who do short selling are excellent hedge fund managers. They are usually very secretive and never show their unique skills to others. Wall Street really doesn’t want you to short sell. If everyone learns to short sell, how can they make money? Moreover, under the education of Wall Street, small investors even think that short selling is a sin and the initiator of the stock market decline – it is all caused by these short sellers, otherwise how can the stock market fall?
But if you don’t short sell, how can you make money in a bear market? If you neither short sell nor stop loss, but keep buying as the price drops, then you are just like most people and cannot escape the fate of losing money.
This article is already very long. I originally wanted to talk about several other issues, such as hasty purchases of mutual funds, only focusing on large-cap stocks, etc. It seems that I can only discuss them in separate articles in the future.
I hope the above text is helpful to you. Remember, most people in the stock market end up losing money. If you want to get out of this camp, you must think of things that others can’t think of and do things that others can’t do. If you find that the people around you think and act the same as you do, your investment will be in danger.
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