Context and Perspective

Views and opinions are a dime a dozen these days.

Especially when markets are euphoric or downright gloomy...

Listening to the advice of others can be misleading and confusing if we don't know the context and perspective of the speaker.


Buy and hold; don't sell at the high and buy back at lower prices.

Makes sense if you have bought at near 52 weeks (even better at 104 or 208 weeks!) low prices. Why bother with the noise of a 10 to 20% correction when you are up 200 to 300% with a wide margin of safety? Stay the course!

Sounds logical right? 

But if you have bought near 52 (and 208) weeks high during May 13...


I don't use stop-loss

If this investor has a max 5% allocation to a single stock in his portfolio, a 50% loss on a stock is "only" a 2.5% scratch in his total portfolio. 

And in the worst case scenario where a stock goes to zero, his max loss is "only" a 5% irritation at best in totality. More a case of losing bragging rights than anything else.

If you owned the same stock as this investor and you have invested 100% into this one stock, would it be wise to follow what this investor does?

The investor already had his risk management in place when he entered into the stock. What risk management steps have you taken to prevent a 50% loss? 

A scratch to that investor is hara-kiri to you!


If it's value at $2, it's even more value at $1.50!  (Value trap)

This investor have a uncanny ability to do bottom-up stock picking. Averaging down when his value picks get even more attractive as he takes advantage of the emotional fear of the market.

Inspired, you try it on the stocks you owned.

Unfortunately, the results are different...

Mark Twain once said:

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.

Then you realise cheap can indeed become cheaper.

Maybe you have got the "value" wrong at the first price entry? 

Others may be averaging down into more value; you are merely throwing good money after bad...

    

It's all you

I can go on but you get the picture. 

Other people are merely sharing their opinions based on their personal experiences. They are not trying to mislead or confuse you. 

But they are not you.

And you not them.

It's not just context and perspective of others. You have to know your own abilities.

If only the road to riches is as simple as copy-cat what others are doing blindly.