The Last Shall Be First
Beloved, I Pray That You May Prosper In All Things And Be In Good Health -3 John vs. 2
I have a few valuable tips and techniques to share with you regarding stocks and the stock market.
First. Initial Public Offerings (IPO’s)—are they good? The answer is, some are but most are not. IPO’s tend to substantially underperform over the 3-5 year period after going public. My advice—stay away from them.
WHAT IS AN IPO
An IPO is a one-time event where a private company or corporation raises capital by offering its stock to the public for the first time.
Here is how the IPO game is played. The really good offerings are generally reserved for high net worth clients who have a working relationship with the investment bankers who do the underwriting. If the IPO trickles down to the average investor, it is because no one else wanted to purchase the stock. The idea that a new issue is going to be the cheapest thing to buy among thousands of stocks is insane and untrue.
Second. Stocks that performed poorly over the past 3-5 years, generally outperform those that had done well over the previous 3-5-year period. That relates to the buy low, sell high principle or as Jesus said, “The last shall be first and the first last.”
Third. ''Hope" is not an investment strategy. The stock market doesn't care what you think or how you feel. You should not buy a stock just because your plumber mentioned it in passing and then hope it goes up while you watch it go down the drain. Here is some really bad news: The investment world does not always conform to our expectations, desires, hopes or thoughts. Unfortunately, even good investment decisions can still lead to bad outcomes in the uncertain world we live in.
I love to read; on average a book a week. Most of what l read has to do with investing. I scratch my head when an author makes a statement such as, "If you feel like the stock is going to go up…or you think the market will go down…” Blah, blah, blah.
What difference does it make how I feel or think? The market has no idea what I'm hoping for, thinking or feeling—and it doesn’t care! You need to make sound investment decisions and live with the consequences, good or bad. Stay calm, rational, cold-blooded and detach your emotions when choosing an investment.
Here’s a Reality Check on the Grandest Scale
It's impossible not to lose money in the stock market at some point in time. No one bats a thousand. Even the best money managers make mistakes. Anyone who tells you otherwise, is not telling you the truth. There are no guarantees. Except, of course, Bernie Madoff, who never had a down year. The problem is, he is no longer in the investment business. He is serving a 150-year prison sentence for fraud. Since he got caught red-handed, he hasn't been doing much of anything except making license plates.
When should you consider selling a stock? After all, there is a time to buy and a time to sell. That book of Ecclesiastes supports that concept: there is a time to sow and a time to reap.
Here are five sell signals from Peter Lynch, Retired Manager of the Fidelity Magellan Mutual Fund.
Consider selling your shares:
When a company changes its name. They may be trying to hide something.
When a company lowers or suspends its dividend payment. More than likely, bad news is forthcoming.
If the Chief Executive Officer (CEO) or Chief Financial Officer (CFO) quits or resigns abruptly. Something bad is going on behind the scenes.
If the stock you own is removed from the S&P 500 index. There is a reason, and it is never good. Millions of shares will be dumped quickly, driving the share price down dramatically.
When there is a really bad piece of news, remember the cockroach theory—there is always more than one.
My advice on selling is simple, if your stock no longer meets the criteria, sell it. Don't hang on for dear life hoping your stock will recover. Hope is a lousy way to invest. So is waiting to break even. If you find yourself in a hole—stop digging—get out—and don't allow hope to triumph over reality. Pull the trigger and sell before you lose even more.
A final thought or two. If you are going to invest in the stock market, make sure you do so for at least a five to ten-year period. Avoid short-term speculation—it amounts to gambling. Never forget: the stock market giveth, and the stock market taketh away. You must be diligent about keeping a close watch on your holdings.
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Thank you. Many blessings to you and yours.