Sabotage Your Portfolio

By Author: Anthony Green
Total Articles: 36
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1 Buy stocks in sectors that are extended because it�s different this time.

On the surface, the stock market appears different all the time. The leadership changes: in come the Nifty 50, and then out they go. Small-cap stocks outperform for a while, then it�s back to the large caps. However, the underlying forces that drive the stock market are always the same. They are true and time-tested and do not change. They are supply and demand. That�s why buying sectors that are extended (overbought) will not be different this time.

2 Try to bottom fish a stock in a downtrend.

�The trend is your friend� is a true statement. So don�t go against it without some inkling that the trend has changed. Bottom fishing a stock in a downtrend is the opposite of being afraid to buy strong stocks. Do not buy a stock just because it fell sharply. You want to buy a stock that is likely to move higher, not one that is not likely to fall further. At a minimum, wait for the stock to show a sign that demand is back in control and suggesting higher prices. That may be a simple buy signal on ...
... the chart or a reversal back to the upside after holding an area of support. Also remember why you initiated the position. Be careful not to let a trade turn into something else.

3 Buy a stock because it is a good value.

These days, value is in the eyes of the holder, and therefore it is a subjective term at best. If a stock has become a good value, ask why. This is important, because a stock can stay a good value by not moving for the next decade, or worse, become a better value by dropping another 20 percent. The true value of a stock is determined by its capital appreciation potential, not numbers on a balance sheet. The basis for capital appreciation lies in the supply and demand relationship of the stock. Appreciation can occur only if demand grows stronger for the stock and buyers are willing to pay a higher price. Watch the point and figure charts to determine if a stock is likely to move higher in price and become a good value.

4 Do anything based on a magazine cover.

Following the hot news that appears on magazine covers is a shortcut to the poorhouse. Why should you follow the advice of someone who has just moved from the society pages to the business section?