Why Price Doesn’t Matter Part 2
So let’s take a look at those so called 7 deadly sins of trading and shed some light on the good fortune of my ignorance:
Mistake #1 was that I checked the news to see what stocks were hot before making that first trade. So that means we should able to make informed decisions about important stuff (i.e. choosing a school, a job, spouse, smart phone, etc.) without having to rely on the opinions of others, right? Same must be true for stocks. In the trades that followed I put that to the test, staying up all night studying Finviz and every other source of financial data, trying to find some secret formula of price and earnings that would tell me that the company’s stock was ready to soar. I knew I was right because I did the research myself!
Um… sadly, I wasn’t. I still never had a trade like that first one. Please CNBC… tell me what stocks to buy so I can get some sleep.
So on to Mistake #2 which is don’t mess with IPOs. They’re too risky unless you know what you’re doing (which I didn’t, of course). After the initial success of the RealD ($RLD) trade, I naturally started scooping up just about every IPO I could get my hands on. QLIK, Green Dot, SodaStream, Tesla, SouFun, The Fresh Market, you name it, were all in and quickly dumped out of my trading account when I became aware of my foolish ways. Boy, I’m so glad I saw the light because…
Wait… Back up a minute… Yeah, that Tesla.
Tesla ($TSLA) IPO’d at 17.00 and is now currently trading at 251.13. That trade would have wiped out all my losses and I wouldn’t be writing this right now (or at least writing from some tropical Mexican bungalow). Incidentally all the others on the above list also went up at least 50% that year. Nothing like being too cautious. Now excuse me while I go bang my head against the wall.
Well at least with Tesla I didn’t make Mistake #3 (not knowing the company), because I LOVED the company (and still do). But wait, isn’t Mistake #6 (believing it’s a good company) sort of the exact opposite of #3? I became convinced that RealD was in fact, the real deal. Maybe Tesla was love at first sight and RealD just kinda grew on me. Which is better? Hmm, depends I guess. The thing is, I learned that trading what you know really has no effect whatsoever on whether the stock is on its way up… or down. So too much love might actually kill you in the end… Or you could be driving a Tesla.