Listen to others, but make up your own mind
Last week I retweeted a chart on Sasol* to my Twitter followers. It was a compelling chart, suggesting a sell on Sasol, which I received from a trader that I respect. As I hit the retweet button, it suddenly occurred to me that earlier in the day I had retweeted another Sasol chart from another trader I respected, but that one was a compelling buy on the company.
So what gives? Well, firstly it shows that I tweet quality rather than only what supports my view but in truth that’s less important. The bigger picture is that that is exactly what a market is about: competing and different views – vastly different views. It has to be. If everybody agreed on everything in the market, we wouldn’t have a market. Or maybe we would, but it wouldn’t move until new data came out and everybody agreed on what the new data meant for valuations. The stock would then leap to the new price in a single bound.
So the differing views are not only exactly what we need from a market, but also what we want.
The problem of course for the trader or you as an investor is which view to consider for your own personal portfolio. The answer is simple: none.
Yes, the stock market produces a massive amount of data and many opinions about that data, far too much information for any one person to make sense of. Often newbies, and sometimes even experienced traders and investors, will seek consensus, telling them what to buy or sell in order for them to make money. We’ll often latch onto commentators whose opinion we either respect or who we think is on the money. But even then the competing views confuse us and leave us unable to do anything.
The problem is simple. Markets are indeed about different opinions, but more than that they’re also about different strategies, time frames, methods, risk profiles and more. In short, no matter how detailed the report (and a tweet, being limited to 140 characters and one image, is very undetailed) we’re never truly able to determine how close the writer’s strategy and the like is to our own.
So what do we do? Well, we need to venture out and form our own view. Sure, at first when we start out in the markets having our own opinion is not only scary, but it frankly seems arrogant as we start from the sides with very little knowledge or experience.
But it is critical that we start to form our own strategy, risk levels, time frames and everything else that goes with trading or investing. At f irst we’ll get it wrong, a lot, and even when we get it right we won’t make as much profit as we should. When we’re wrong, we’ll lose more than we should.
Perhaps the most important point is having that exit strategy. For everybody that strategy will be different. Broadly speaking, for a trader it is 100% price based while for an investor, it is 100% fundamentally based. The f irst step would be to decide when you will admit you’re wrong and exit the position.
Then while you’re making those decisions and selling when the strategy says you must, continue to listen to others’ opinions. Learn from the opinions of experts and refine your own opinions. But never blindly follow somebody else’s view just because it seems to make sense or because maybe they have a lot of Twitter followers (neither of the above tweets came from such accounts).