Remember the movie “The Avengers” when Captain America asks Tony Stark what is his plan of attack after Thor gets Loki out of the S.H.I.E.L.D.’s spaceship?
Tony Stark says, “I have a plan of attack, ATTACK.”
Sounds like he doesn’t really have a plan.
In the stock market, many of us are like Tony Stark. We attack the stock market with blazing guns and repulsor beams without an investing plan. In the movie, Tony Stark wins the battle but in real life, investing in stocks without a definite plan is a losing battle.
I’ve come up with this list while observing how many investors react to the bloody red portfolios now that the Philippine Stock Market is down. If you feel these 3 signs, you might be investing in stocks without a plan. If you find yourself in such a situation, then maybe you should re-evaluate your investment plans to determine the factors affecting your investing decisions.
You ask advice from different investors with different investment objectives
Let’s say I love Jolly Spaghetti better than McSpaghetti. If you ask me which spaghetti is better between the two, I’ll definitely say that I love Jolly Spaghetti better. Now ask a person who likes McSpaghetti better and ask him the same question, what do you think he’ll say? The point is this, if you decide and plan to become a long-term investor, then get advice from long-term investors. If you ask traders what to do to a bloody portfolio when stocks are plummeting, they’ll probably say to cut loss. But you’re not a trader. So why follow a trader’s advice if you’re a long-term investor? If your plan is to invest for the long-term, then follow known long-term investing strategies. The same goes if you’re a trader, you should stick to know stock trading practices.
You don’t know the true value of your stocks
Many will claim that they know the value of their stocks. But if you ask them to present their valuations, they’ll point you into an investment guide which they treat as their Bibles. There’s nothing wrong following those guides. Even I follow some of these guides. In fact everyone encourages to do it if you really have no time studying about stocks. My point is, investment guides should be used as tools and not as a full proof system for investing. Investment guides gives you a GLIMPSE of what a stock has to offer and that’s it. If we want to know how a stock will perform in the long run, we should consider doing additional research on the company ourselves and find out the answers to some of the questions below;
- What business does the company do?
- What market sector is the company in?
- Who is behind the company’s operations?
- Is the company ever been declared bankrupt?
- How is the company managed?
- Does the board have independent directors?
- Is the company performing in the recent years?
If we find positive things about the company, the next step is to determine if the stock is on a bargain or not and check to see if the stock is good to buy based on fundamentals. If we do these things, we can decide for ourselves when is the right time to buy and at what price without relying on guides. This is the main reason why many investors suffer huge losses compared to others because they buy stocks they think they know when they are too expensive so when the stock crashes, they incur the biggest losses. Remember that an investment guide is only a tool; a tool be used after you gain enough experience and confidence in your valuation and decision-making skills.
Your strategy is based only on the positive side
If that’s the case, then what if it all turns out to be negative? Just like in the real world, careful planning also requires a contingency plan in stock investing. It’s like having two plans; Plan A when things turn out positive and Plan B if it turns the other way around. If stocks continue to rise, you do Plan A but if stocks plummet, you do Plan B. Many investors say they are on the long-term but when stocks fall, they cut loss instead of averaging down. There are also traders that become long-term investors because they weren’t able to follow their cut loss strategies so the stocks they hold remain ‘ipit’. When investing, we should also have an emergency plan just in case our investments didn’t go on our favor.
Conclusion
Bottom-line is, investing in the stock market without a definite plan is not investing, it’s speculating. Planning is knowing where you are and where you want to be financially, and how you intend to get there through proper investing objectives.
Happy investing!