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Tips

Anyone wants stock market tips?

There is a saying "free advice is worth the price you pay", i.e., nothing; in fact, stock market tips that you have to pay for, like investment newsletters, analyst reports, investor society memberships, magazines, etc, are not necessarily good either. I remember several hilarious (to me - the people in it were deadly serious) moments during the second half of 2007 when I watched CNBC interviews of experts: how would the market react to another one of those many economic news items (unemployment, consumer sentiment, leading indicators, etc) coming out today: if the news is good, the market will rise; if the news is bad, the market will also rise because market players expect Federal Reserve to cut interest rate.

Well you cant say this any more, since US interest rate is already at 2% so there is almost zero room to go down further. In any case, the first half of 2008 has extinguished all hopes that the market will rise with good and bad news, and those who said such silly things (and those who listened) are too embarrassed to remember ever saying them. Yet, in a way the perpetual optimists are correct - considering how bad the US economic events have been, the market actually fell very little:

the blue line is Shanghai, which rose like crazy then fell even faster, and in the end all three indexes have been almost flat for the past 12 months, falling just slightly. And in the long run, shares do rise and long term investors are eventually going to be rewarded.

No I have no stock market tips to give out, but I have various views

1. Before we start:

To make money in the market you need to find two fools, one to sell to you low,  one to buy from you high; everyone is looking for them, and they can be YOU  !!

2. Beginner's luck:

A new investor would normally have saved some money, watched the market very carefully, and made some moves only when shares looked very cheap. He is likely to do well in his early strikes. This, however, might engender a false sense of confidence, and he might start to be less carefull and to make mistakes, which he might find difficult to admit, meaning that mistakes would get compounded. (In university jargon, Freshman's high is followed by Sophomore's dip; only in Junior and Senior years does the student settle down.)

3. Switching shares:

You sell shares to take profit because they have risen, but they rise because they are good shares, so usually they continue to rise; you buy shares after you see they fall, but they fell for a reason, which may remain valid for a while, so the shares continue falling after you bought...

So switching from risen shares to fallen shares is a doubly hazardous move. In the long run, the switch may turn out to be correct, but in the mean time, get used to being depressed.

A dealer friend once figuratively said "when people take profit, they pluck the flowers and leave behind the weeds", more or less same as what I described.

4. Investment strategy:

I dont have one because I dont have the patience to read books. To me shares are a cash management tool - when I need cash, say to make down payment on a property, pay US college tuition, pay tax, etc, I look at which shares show profit and seem good to sell; when I have cash, say after receiving a bonus, I would look at which shares seem good bargain (if I cannot find any, I put the cash into something else).

In this way, you integrate share investment into your general life, and if you do not buy/sell at the best price, it does not feel so bad since you are just doing things you need to do anyway.

I do not know whether you thought the time spent reading this worth while, but hey, it's free.