Stock price movements are often interpreted in the wrong way by investors.
Here are the 12 silliest & most dangerous things people say about stock prices.
Peter Lynch has discussed these in his book and he hopes we all dismiss these from our minds!!
A thread 🧵
Here are the 12 silliest & most dangerous things people say about stock prices.
Peter Lynch has discussed these in his book and he hopes we all dismiss these from our minds!!
A thread 🧵
1. If it's gone down this much already, it can't go much lower
Even if stock is a bluechip, there is no such rule in the market.
It may still fall further if:
~ It's overpriced
~ Business fundamentals have turned bad
Investors who hold blindly, could suffer a permanent loss!
Even if stock is a bluechip, there is no such rule in the market.
It may still fall further if:
~ It's overpriced
~ Business fundamentals have turned bad
Investors who hold blindly, could suffer a permanent loss!
2. You can always tell when a stock hits bottom
This is bottom fishing
In most cases it's akin to catching a falling knife.
Even if you buy,
The stock may fall further and take years to rise to your buying level, eventually hurting your portfolio!
This is bottom fishing
In most cases it's akin to catching a falling knife.
Even if you buy,
The stock may fall further and take years to rise to your buying level, eventually hurting your portfolio!
3. If it's gone this high already, how can it possibly go higher
~ There is no limit up to which a certain stock may rise.
~ If business fundamentals are intact & earnings keep improving there is no reason why the stock price won't go higher.
~ There is no limit up to which a certain stock may rise.
~ If business fundamentals are intact & earnings keep improving there is no reason why the stock price won't go higher.
4. It's only $3 a share, what can I lose?
~ A $3 stock, isn't cheap or safer than a $50 one
~ A lousy cheap stock & lousy expensive stock have same risk, when they go down
If you & somebody else put $1000 at $3 & $50 and stock goes to zero, both lose the same amount of money!
~ A $3 stock, isn't cheap or safer than a $50 one
~ A lousy cheap stock & lousy expensive stock have same risk, when they go down
If you & somebody else put $1000 at $3 & $50 and stock goes to zero, both lose the same amount of money!
5. Eventually they always come back
History has many examples when, businesses whose stock price fell, could never come back!
Just because stock price has fallen from all time high, doesn't mean it will regain it in future.
It ultimately depends upon the underlying business.
History has many examples when, businesses whose stock price fell, could never come back!
Just because stock price has fallen from all time high, doesn't mean it will regain it in future.
It ultimately depends upon the underlying business.
6. It's always darkest before the Dawn
We tend to believe that if things have gotten little bad can't get any worse
e.g. number of active oil-drilling rigs in US:
1981 : 4520
1984 : 2200
Many bought oil-service stock then, in the hope of rebound.
1986 : 686
July 2021: 484!!
We tend to believe that if things have gotten little bad can't get any worse
e.g. number of active oil-drilling rigs in US:
1981 : 4520
1984 : 2200
Many bought oil-service stock then, in the hope of rebound.
1986 : 686
July 2021: 484!!
7. When it rebounds to $10, I'll Sell!
Anchoring bias makes you believe a stock would reach a certain price for you to exit!
Often this is some arbitrary number or a certain percentage return
Unless you are confident in the business to buy more shares,you must be selling!
Anchoring bias makes you believe a stock would reach a certain price for you to exit!
Often this is some arbitrary number or a certain percentage return
Unless you are confident in the business to buy more shares,you must be selling!
8. What me worry? Conservative stocks don't fluctuate much
People expect steady growth, consistent dividends from certain "safe" stocks e.g. FMCG companies
But, companies are dynamic & prospects change!
Investors must re-calibrate investing premise based on changing situations.
People expect steady growth, consistent dividends from certain "safe" stocks e.g. FMCG companies
But, companies are dynamic & prospects change!
Investors must re-calibrate investing premise based on changing situations.
9. It's taking too long for anything to happen
Often stock price doesn't move for years together.
Impatient investors feel the stock is doomed & exit!
It takes remarkable patience to hold on to such stock.
If fundamentals are promising, patience is eventually rewarded.
Often stock price doesn't move for years together.
Impatient investors feel the stock is doomed & exit!
It takes remarkable patience to hold on to such stock.
If fundamentals are promising, patience is eventually rewarded.
10. Look at all the money I've lost: I didn't buy it!
It's okay if you missed a spectacular rally
Someone else earned 100% in a stock, isn't your personal loss.
People try playing catch up by buying these stocks at wrong time & wrong value.
This result's in real losses!!
It's okay if you missed a spectacular rally
Someone else earned 100% in a stock, isn't your personal loss.
People try playing catch up by buying these stocks at wrong time & wrong value.
This result's in real losses!!
11. I missed that one, I'll catch the next one.
You didn't buy company A, the sector leader that went up.
So you buy the second best company B, b'coz it went down.
But, B won't give same results as A.
Not buying A, was never your loss; But buying B could result in one!
You didn't buy company A, the sector leader that went up.
So you buy the second best company B, b'coz it went down.
But, B won't give same results as A.
Not buying A, was never your loss; But buying B could result in one!
12. The Stocks gone up, so I must be Right
or..
The Stock's gone down so I must be Wrong
Don't mistake Co-relation for Causation!
Understand reason for business performance
Stock going up/down after you buy, only means that somebody was willing to pay more/less for that stock!
or..
The Stock's gone down so I must be Wrong
Don't mistake Co-relation for Causation!
Understand reason for business performance
Stock going up/down after you buy, only means that somebody was willing to pay more/less for that stock!
If you have loved this thread do retweet the first tweet👇👇 in this thread for the benefit of all!!
https://twitter.com/Finalysis20/status/1425998803153293315?s=19
If you haven't yet read the book "One up on Wall Street"
Peter Lynch talks about history, markets, investor behavior with actual examples.
He believes individual investors can outperform the professionals!!
Here's a link to buy the book:
amzn.to/3lYHGc5
Peter Lynch talks about history, markets, investor behavior with actual examples.
He believes individual investors can outperform the professionals!!
Here's a link to buy the book:
amzn.to/3lYHGc5
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