Saturday, January 9, 2010

Buy the Sell off, Sell the Rally

 

The Stock Mantra of prime importance is, you buy during big sell offs and you sell your securities during rallies. How many really do follow this simple logic in Stock Markets or Commodities Market is a question, even though it is the only way to make money in Stock Markets. Every body knows this logic, but nobody doesn’t follow it.

The Simple reason for that is, the logic is associated with emotions of investing person. During big sell offs, the Investor would go by his heart not by his mind. If you go by mind, then it will show you that this is the right time to invest. If you go by the heart, then the panic created by the big sell off would certainly eat you to make you sell the securities actually at a time when you should be buying it.

So investment decisions in any free Markets should be rational, not irrational. Rational Investors are very few in numbers and they are the winning Investors in the Market. Becoming a rational Investor is not as easy as it looks. You have to keep you emotions under the check during the big market moves and you have to think independently.

If you join the crowd, then you would be sucked into the crowd and you would be part of the crowd and your investing or trading decision would be taken irrationally or emotionally. Always await the crowd during time of taking Investment decisions.

One simple example is, those who have invested in the Stock Markets would have invested their money mostly in IT sectors in any part of the world from 1999 to 2003. Because, the popularity is such that any investor would have invested only in this sector. But this sector never saw a big bull market since then.

Had an investor acted in his own way and though investing in IT sector would not fetch good returns, simply based on the fact, that this Sector is already over Invested, certainly he would have avoided that sector.

So, be rational when it comes to investing.

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