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Predicting the stock market: Investment or Gamble?

DARK_KNIGHT · 47 · 11418

terrapin

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terrapin,
if you buy a stock in the hopes that it will rise in value and it goes down, then yes, your stock pick was wrong.  just accept the loss, stocks are not required to come back and they don't care if you own the shares.  if you want to 'invest' in a particular stock, then buy shares in thirds instead of all at one time, so that you can average your purchase price.  my point is that small losses can turn into very large losses in a heartbeat, don't gamble your money away, it doesn't have to come back.  pusa is right on here, buy high and sell higher.  no one can pick a bottom, even buffet is under water with some of his recent purchases.  buy something that is in a bull market and if you are able to hedge your stock with a 'put option', then please do, or use a 'stop loss' order set at 8%max loss.  that said, investing is much different than trading stocks, i am a strong advocate for trading stocks correctly and with known potential losses.  buying and hoping is like gambling to me.  my .02, good luck!


your statements are contradicting.  you talk about being wrong if your stock pick goes down in value, yet you also advocate stop-loss at 8%.  why even wait for that 8% loss? if i picked a stock and it goes down 1,2,3...7 %, then according to you, ive already made a wrong choice.

think about it:  if YOU had invested, and YOUR stock dropped down 7%, YOU still wouldnt sell - simply because the price hasnt reached your stop-loss point yet (am i correct so far?).  so wouldnt you agree that your 7% loss, at this point, is only a "PAPER LOSS" and that you still believe that your choice may turn out to be correct? otherwise, why havent you sold already?

most of us know that buffet recently invested billions into goldman sachs probably somewhere around $110/share.  the stock is down right now at around $89 and was even down lower 2 weeks ago up to as much as $75 or so.  it is premature to say that his stock pick was wrong.  he's probably thinking something like, in 7-10 years, that stock will be making new highs of over $240.  so right now, in the near term, his 20-30% paper loss is just temporary to him and he still believes he made the right choice (we know that cause he hasnt cut his losses yet).  he didnt get the best possible price, but im sure he did his homework before buying and thought that $110 was already a good value price relative to its potential.


daveyc

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terrapin,
i don't use stop orders, i use long term 'put options' instead if i decide to buy a stock.  that said, not everyone reading the posts on this forum is able to use options.  i'm saying to limit your losses to 8% max with a stop loss order if you can't use a 'put'.  some stocks do not come back, you know, look at bear sterns, lehman, any financial stock, or what about cisco or intel or aol, lol and on and on.  try holding on to those for the long term and think you don't have a loss, hmmmm.  ok.  if i'm sitting with an 8% loss instead of 40-100% loss, i'm sittin' pretty.  thats the point i am trying to articulate, here.  i've had my share of pain and i am happy to share my mistakes so that others don't lose.  sometimes a companies fundamentals don't make a difference to the stock price.  sometimes technicals don't matter, either.  so i say, have a plan, an exit strategy, so that a managable loss does not destroy you.  by the way, goldman sachs ain't comin' back to $240, and buffet can't believe that either.  good luck!


terrapin

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youre jumping the gun again!  whos to say that goldman cant rise from the ashes? even if it doesnt reach $240, my point is that buffet seems to think that, at $110, it was already a good deal.  and by the way, history proves that the market always recovers from recessions and depressions.  it has yet to be disproven.  yes, there are some companies that dont make it, but that is why you have to choose wisely.








pusa

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now buying low, selling high is easier said than done. everybody is trying to that and most of them get burned; you can never accurately predict the bottom, whereas buy triggers on breakout is much more predictable and have a higher profit probability.
Posted on: Oct 31, 2008, 07:41 PM
oh you use fundamentals analysis. there's no point in explaining to you what "buying high, selling high" is  :hello:

hey months ago, people thought lehman and aig has good fundamentals  :hihi:



aso

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guys, my $0.02 cents on this discussion... before buying anything , be it stocks or whatever... be sure you have a plan...a plan that includes everything.....
1. at how much will i buy?
2. at how much will i sell if im wrong...? when to say quits
3. how much of my total asset will be lost /how much risk i need to take?...if i will hold this asset (or stock) come what may, lets say if it goes to 0 (losing 100% of value)? can my account take that huge loss? -- risk/reward scenario.../money management
--- Buffet might have bought something but how much % of that is from his total portfolio? who knows it might be just 2%...or he is hedge just in case price goes down to even 50%..... risk/reward scenario...you dont need to follow him blindly guys... he is a billionaire and he will never buy and hold just because he likes to....
4. when will i sell? when will i take profit....?

buying BLINDLY is dangerous, especially if all you think about is profit......and dont give the reason that prices always goes back up...it doesn't matter what company it is.....there is always a probability they can go kaputz!..

you can always be smart on your stock trading or investing... you need a plan , a good money management and a good risk/reward plan....

again my $0.02 cents.....
« Last Edit: Nov 02, 2008, 12:53 AM by aso »



aso

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i think what pusa was saying that people are calling AIG and LEHMAN a buy as it is very low already ( 50% stock price loss based on previous highs), well who would have thought? it loses another ~100% of its value..   :applause: :applause: :applause:




aso

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dude you are putting words to his post...he didn't said crappy ones...can you read? he said chose wisely and manage downside risk...wow...nice analysis...and you are into the stock market?  :hihi:

"sounds to me like your saying  "choose any stock out there. even the crappy ones. it doesnt matter anyways... all that matters is managing your downside risk"


terrapin

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aso

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@terrapin

dude, this is what he typed..

"...you can 'choose wisely' all you want but in the end, its all about managing the downside risks.... "

so?


terrapin

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@aso

sorry dude, i cant help you anymore.  lets just let daveyc correct his own statement.


daveyc

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folks,
i'm just here to share some thoughts and experience i've had with trading and investing in stocks mainly because i don't want others to suffer the losses and sleepless nights that i have had in the past.  the original poster was trying to determine whether or not the stock market is like gambling.  well, the stock market is one gigantic casino, sort of.  we cannot predict the future value of a stock and stocks don't necessary trade with their fundamentals.  my only point is to protect yourself, that means, your EXIT.  
terrapin, my friend, i'm not sure what you want me to correct.  but i will try. i believe i was quoting your reply when i said to 'choose wisely' all you want and just to manage your downside.  that doesn't mean choose a 'crappy stock', certainly not.  if you are trading with a 'stop loss' then that would be ok, but...  you really need to hedge all stock purchases with options, this is the only way to guarantee and give you the opportunity to trade your plan.  if you bought xyz for $50 and you have a 'stop loss' at $46 and overnight the company has bad news, next day your xyz stock opens at $40, guess where your broker executes the sale?  $40!  so a 'stop loss' is a tool but not the answer all the time for your protection.  if you want a better example and are looking into buying a particular stock, just reply with a stock you are following.  


 


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