Lis­ten to oth­ers, but make up your own mind

Finweek English Edition - - INSIDE - si­ * The writer owns shares in Sa­sol.

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).

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