04. Wave Lessons 1

While my first foray into stock trading and investing was successful, I consider it more of a freshman luck. I was simply cost averaging and there was totally no systematic and orderly plan at what price I enter and exit the market. It was all trade and no plan. I could have improved my profit and ROI considerably if I did a little technical and fundamental analysis. Looking back, these are the lessons I learned. These shall serve as my trading and investing philosophy from hereon until such time that these will be debunked by future experiences.

1. Know the fundamentals of the company you are planning to buy. At the elementary level, know its financial performance. Are its revenues, net income, earnings per share improving througout the years? Are they paying any dividends? Luckily for me, I worked in the bank which shares of stock I was buying and I have very good inside information whether the bank was performing well and whether it has very good chance of regaining its old glory at the top.
2. Do not disregard the charts. These are your tools in feeling the market direction and its psychology. I did not know how to read charts then and what the candlestick formation means. Before, I only relied on gut feel. While that is a good trait, it can work better with a working knowledge on technical analysis.
3. Always read the news and understand how it affects the market. When the US banks were encountering losses on subprime loans, I simply ignored them on my firm but false belief that it was too far away from Philippine shores and would not hurt my stocks. As the world financial market is way too interconnected already, I was not prepared for it though it worked on my favor.
4. Regardless of how good the company's financial performance is and how well the charts tell you that the price is going up, once the market is hit by a bad news on a global scale, the price of your stock will go down. The stock market is highly responsive to good news and bad news. However, it is what makes it exciting.
5. While you do not wish for bad news to happen, bad news is good news when you are planning to buy a stock. When when there is bad news, wait for it to happen. Or if it is unfolding and ongoing, wait again for it to stabilize before buying. In other words, wait for the market to bottom out. You will know that the market bottoms out when the price no longer goes down any further and the volume of transactions is already too little to make any further move downwards.
6. Do not just buy at every opportunity that the price is down. Learn to project price trends, resistance and support. At which price should you enter? What is the risk? On my first try at the stock market, I simply bought every time the market went down without understanding why. I only knew that the stock became cheaper. While I was cost averaging, it was a wrong one because it was a costly average cost. I could have have made the average cost a lot cheaper if I entered at strategic points and not just at every price drop. Panic-buying is a wrong thing.
7. On the flip-side of the coin, so is panic-selling. When the market went up, I was also not thinking at what price I should be selling. I was simply selling at every opportunity. As it turned out, I could have higher margins if I studied the price movement going up in the same manner as it was going down.
8. Do not be too excited when the market goes up or down. Always be patient. As stock traders often say, "Plan the trade and trade the plan." Know when to enter and exit. Do trending of price movements going up and going down and make your plan.
9. Do not be too gullible on what others say where the price settles. Do your own research. I made a mistake in listening to two bank presidents. The first forecasted that the price would hit P100 when I first bought my shares of stock while the second one forecasted that the price would hit P80 when the stock price hit P70 during the latest bullrun. I listened to both and paid dearly.
10. What goes down will eventually go up and what goes up will eventually go down. This is generally true as long as your company's fundamentals are right. So, when you entered the market during a bear period just hang on. Do not fret about it and consider yourself a passive investor. Conversely, when the market goes up and up, do not continue holding on to your stocks believing that the price will continue to go up unabated. In other words, "Do not panic when it is bearish, but do not be too greedy when it is bullish." A little greed is enough.