Today -- actually the last few days -- have been real "interesting". These kinds of swings used to freak me out -- I'd be all in on one day and the next afternoon the sky was falling, and I'd sell all. Then I'm sitting with a pile of cash - and things would flatten out or rise a bit and I'd be all in again. I look back 20 years and think that had I stayed put what my net worth would be today. I bought STARBUCKS IPO at $14.50 a share (1000 shares).... flipped them out the following Friday for a gain of $500 and thought what a score I'd just made. IDIOT! LOL
So let's talk about MOMENTUM.... Momentum is when a stock trades up (or down) just because.... there's no real fundamentals... the earnings (P/E) couldn't possibly enter into the equation because it's so far out of whack... but everybody you know is into "it". And the talking heads on CNBC/Bloomberg discuss "it" every half an hour. These kinds of names work magic.... while they're working. That's the hard part. Nobody can know when they're going to quit working and the UP momentum turns south. All the people that were in it to win it -- suddenly don't want to touch "it", and sell out as fast as they can.
Let's use the action in GoPRO (GPRO) today as nothing more than an example... Pull up a chart and stretch it out to "all". What I want you to look at this time is the VOLUME hashes along the bottom of the chart. Notice the SPIKES UP in volume and follow that spike in volume straight up to the PRICE action in the line representing the price. Notice it DIPS (drops) at almost every spike in share "volume" (meaning shares exchanged hands). That's people selling -- and of course others have to buy or you wouldn't have a transaction. My guess is people are trying to buy on the dips... That can turn into trying to catch a falling knife -- or can work well if the momentum continues in the name. Hard to know which way it will go.
Note that there's also a couple spikes where the shares go UP as well. They seem to be EARLY ON in the life of this stock. Since then the spikes have all been selling pressure.
I don't care if you own GoPro - what I'm showing you here is just some more "fodder" to look at when you're thinking about jumping into or out of a name. Remember that the rule of any market is that prices RISE when there's more buyers than sellers - and the reverse is true when there's more sellers than buyers.
In this example -- had you gotten in early enough - you'd still have a very nice gain (60%)... but if you got in later -- after you kept hearing that this was the next free rocket ship to wealth -- well then, you might not be so happy with it right now (a decline of 21% YTD). This is when you start to question your intentions. Not a bad thing. It happens. You never question yourself when the stuff is shooting to the moon! You only start to question your holdings when they're going down or go underwater. Was this an INVESTMENT? Or did you think/hope it would just go up 10 or 20 bucks a share and you'd scoop the gain and be gone? Now what to do. Maybe now you're underwater for 10 instead of up 10....
THIS IS WHAT PEOPLE HATE ABOUT INVESTING!!
It's EASY when everything is going your way.... it's damn hard when it isn't. That is what I'm always talking about when I say - I like to own stuff I can sleep with. A couple bad names in the portfolio can kill the performance of the good ones. Not sure why that is - but they always seem to fall harder and faster than they went up. They tend to creep up - a buck here - 50 cents there... but when they suck - they suck in a day or two!
I don't care about this name (GoPro)... I'm discussing the market... how you see the market... and learning from it. That's the key - we want to be better next time... we want to understand BEFORE we go into something what the pitfalls are. It's hard to make and KEEP money - it's really way easier to lose it. Whether you're into this kind of stuff or not - you should be watching it. Learning from it. Many times we get clobbered by something we'd never have guessed. That's life. It happens. Oil is a great example. Anything to do with oil is just getting hammered right now. Unforeseen! Who the hell would have guessed that! Not me! There is always "market risk". I build that in when I look at the dividend percentage. I think - if this sucks - am I okay with the dividend? It helps. It doesn't cover the sin - but it helps take some of the sting out. It's another lesson I've learned along the way. Another one is the 5% rule. If you can try to stick with that rule the losers don't hurt as much. Load the boat up (get greedy?!?) and one bad period can ruin your performance temporarily (or longer!).
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