Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investing Mantra, Not to Convince, But to be Convinced

InvestorEducation / Learning to Invest Mar 10, 2011 - 03:13 AM GMT

By: Victor_Chan_Wai_To

InvestorEducation

Best Financial Markets Analysis ArticleThe most valuable mantra in investing goes by: “Not to convince, but to be convinced.” A good investor does not take unnecessary chances and then convince himself that everything would be alright. Rather, he would wait until the right opportunity comes by and convinces him that it is the choice to make. In other words, a winning investor always abides in stillness until a high-probability signal dawns on him.


Let the Winner Proves Itself

For example, a momentum investor refrains from buying a fundamentally sound stock until its price has broken out to a new high. The reason is that, whenever the price reaches the higher end of the range, short-term investors would anxiously sell for a quick profit, while the long-term investors would begin accumulating those shares just being sold. The price would finally succeed in breaking into a new high when there are no more sellers to push the price back down, i.e. all stocks are transferred from bears to bulls, which means that there is no more resistance against the price to go up, and this is the safest time when you can put your capital at risk.

If you buy a stock long before the breakout occurs, chances are it may remain going sideways or even plunge down later, because your analysis of the stock may not be correct after all, and you forgo better opportunities by sticking your capital with a loser. It is against human nature to give up a bargain, but it would be risky to buy under an unconfirmed situation. This is especially true if the current market is in a correction mode, which gives us more reason to wait for a properly formed breakout. This is why instead of trying to predict the future, we patiently allow the stock to prove itself, and buy at the proper time as indicated by a change in price and volume.

ASSUME = ASS U and ME

Therefore, instead of assuming what will happen, you should simply wait for the market to confirm what you are assuming. One of my favorite jokes on the English language is that, “The word ‘ASSUME’ spells ‘ASS U and ME.’” Most financial analysts make the mistake of assuming that they know a lot about the market, and make predictions that are wrong for 50% of the time. It is ego play instead of investing, and unfortunately the smarter the individual is, the more prone he is to fall into this trap. This explains why so many bright people, including those really knowledgeable professionals like Julian Robertson and Victor Niederhoffer, were blown up in the financial market simply by not admitting they were wrong when the market told them the truth.

A great investor does not assume that he can always be right in the market, and instead he knows the only one who is always right is the market itself. As legendary stock operator Jesse Livermore pointed out that the aim of the game is not about being right, but about how much you can make when you are right. Therefore the difference between the stock “expert” and the true winner lies in that, while the “expert” always has to appear confident, pour out myriad of theories of fundamental analysis and make calls on the market, the profitable investor, on the other hand, believes that he could never be smarter than the market, and let only the market, instead of anyone else, to tell him whether he is right or wrong.

The Lure of Omniscience

As Sherlock Holmes said, “It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.” All these troubles begin with the human urge to demonstrate omniscience by predicting events before they occur. It is almost like you would need to have an IQ of 200, the knowledge of a PhD, and some enormous insider information to make you successful in the market. As a result, you can see a lot of amateur investors spending a lot of money on expensive seminars to learn some obviously pointless methods like astrology, simply because it is too alluring to know how to predict the future. They do not realize that investing success is as simple as patience and humbleness.

The 80/20 Rule in Investing

To cure this, one must understand that the 80/20 rule applies in investing that, for most of the time, you simply do nothing. As Livermore warned, “No man can always have adequate reasons for buying and selling.” In other words, there are times when the correct trade is sitting in cash. Many otherwise profitable investors give back profits by overtrading, and they would surely benefit from the discipline of momentum investing by only buying on strength as proven by a breakout.

Livermore believed that timing was everything to a speculator, so that it is never about if a stock is going to move, but when. Although it seems quite obvious, many investors simply do not bother, as they would buy the stocks they want anyway, and wait for the move to play out, and hope that everything would be alright. The market may eventually move in the desired direction, but it may also not. It is simply not sensible to be exposed in the market before a confirmation, just to hope that it would turn out fine.

Summary

A good investor does not buy a stock and convinces himself it is correct. Rather, he waits for an opportunity to prove itself to him. The reason is that the market has its own cycles of profitable and barren periods, and the former is way less often than the latter. By not imposing one’s own logic and ego onto the market, he will be able to see the market as it is, and hence keeping the powder dry until the best opportunity presents itself. Unfortunately, conquering one’s own ego is the most difficult task in the world, especially for those who consider themselves more knowledgeable than average. Still, it is only after an investor has acquired this habit to “be convinced but not to convince”, he is able to make money.

By Victor Chan Wai-To

Selfgrowth Expert Page:http://www.selfgrowth.com/experts/victor-chan_wai-to

Victor Chan Wai-To is a currency trader based in Hong Kong.

© 2011 Copyright Victor Chan Wai-To - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in