LogFAQs > #948654106

Hey Nanis

You fix this by doing one of two things:

1) You develop a process for choosing stocks that you are comfortable with and confident in, that does appropriate due diligence and that can manage your tendencies to overreact. If you have a process you are confident in, you can more ably trust your decisions without bowing to outside pressure and making panic decisions. You'd also want to establish rules for yourself to manage that fear in general.

2) You realize you aren't cut out for actively managing your investments That's okay. 99.99% of people aren't. It's possible that NONE of us in here are. ETF's and similar things are made for this purpose. There are people whose jobs are to make you money - you can put some level of trust that they will do it. You can find ETF's that meet your level of risk.

I will now share my investing mindset. I think you should consider how much of what I'm doing, you are doing, before you even really consider thinking you are ready to continue #1 above.

I only started investing a three months ago. For some background on me, I am an accountant for a publicly traded retail company. I recently passed the CFE, which is the once a year final exam to become a CPA in Canada. This isn't meant to claim I know all about this stuff - I think I know very little about how the stock market works. But what this does do is give me the financial literacy that allows me to feel relatively comfortable looking at a company's financial statements and assessing their relative health.

I'm new to actually directly investing, so I've been starting relatively small $500-1k investments in individual companies. I do a lot of reading of what people are talking about online and identify stocks I think sound interesting. I do a qualitative assessment - I wonder to myself whether what people are saying about the company and its goals and the industry it is in makes sense. Do I think this company has room to grow within its currently existing industry? Will that industry itself grow overall in the future, which would give that company opportunity to grow? If these seem reasonable, this company might be on the table. I also need to ask myself why I heard about this stock - am I being misled by somebody that's just trying to generate buzz and pump up the stock so they can sell? That's mega common on reddit, so that's always an important question to ask. I don't want to be the sucker buying at the inflated price, my goal is to be the guy buying a the low price, after all. If I'm suspicious about this at all, then the stock is no longer on the table.

I also think it's important at this stage to come up with some arguments why this stock might drop - if it's just as convincing or more so as the ideas on why it would grow, then

Then I do some quantitative analysis. I can't say I do anything too indepth - i've seen moderators on r/stocks say that stock prices are determined by the most widely known Discounted Cash Flow projections, and nothing else matters for stock prices. I've also seen people say that in general all future events that are expected to happen are currently priced into the stock. I don't really believe either of these things are true. I think a stock's price is pretty far from divorced from *any* objective measure of value, and vary based on whims not that different from your fear buying/selling. So trying to determine what the "right" price to me seems pretty impossible. People talk about setting price targets but I'm not sure if there's actual genuine merit behind that. I might try to do my own DCF's in the future, since I don't think they are completely useless, but I don't think they are the definitive guiding factor some think they are so I haven't bothered for now.

Right now, I mostly just take a high level look at important income statement items, and whether a company is making profit at all, and if they aren't, there better be a VERY good reason why it's not and why it'll likely change soon. I'll look for since of distress on the balance sheet - do they have cash to maintain operations? Are they overleveraged on debt? You might recall I pushed gravy on whether Boeing really has the cash reserves to weather the pandemic before I bought into it. Some might say these aren't really that indepth questions, and I would agree, but this is currently the lengths I'm going to. Generally, my mindset is "if company do good in future, stock price go UP!!" which may not technically be true but its the guiding light I go by right now.

So I ask these questions, and if everything feels good to me, then I'll consider buying the stock. I'll look at the recent price history and see if anything looks really funny. If it's been rising sharply recently, I might reconsider. You might recall that I bought AMD right before it's Ryzen 5 press conference - it has risen ten dollars to $87 right before that conference, and I got in, then it fell to $83 immediatley, and went even below $80 a little at some points. When I made that purchase, I saw that the rising trend had happened, and decided I thought AMD was a strong enough buy that even if the price falls after the conference, I think in the long term it'll rise again, so I was okay with $87. It is at $92 now. So I was right... but the profits are slim and if AMD falls I'll be in a loss again if I don't sell. I bought more at $82 in a separate account and track it separately and that's looking way more profitable.

I learned a lesson from that trade and have created a new rule for myself - If I see a stock rising sharply very recently, I'm just not going to buy it, no matter what the hype is. There is risk I'm at the top of a peak that's about to collapse, that's not where I want to be. If I do my due diligence and decide AMD is a good buy, and then look and see it has risen sharply lately.... I'm just gonna wait and see what happens. If it drops and my decision that it's a good buy still holds, then I can buy! Or even if it stays level. If it continues to skyrocket, then oh well. I can go into something else I feel more comfortable with.

After all - I was strongly considering buying PLTR just as it was taking off, but backed off since it was just too hot of a meme stock for me right at the last second. So instead that day, I bought.... ARKG, an ETF that has given me 40% returns. Sure, I missed that immediate PLTR boost, but at the time of my decision making, I just could not justify it. Looking at it now with hindsight doesn't mean I should have done it. My warning flags told me not to do it, and if I develop those enough to determine safe investments, I think I will be better off.

Then, once I've made the investment, I hold the stock. I hold it. I don't react quickly to any news. If it seems like there's bad news.... I'll see what happens. If it drops, well, that sucks. I'll hold it some more and see what happens. News would need to be TRULY dire for me to think "ok i need to sell this RIGHT NOW and protect my money!!". I'm actually not sure yet what my criteria for when the right time to sell is. I'm willing to accept a loss on a sale if I think it won't come back, and I'm also willing to sit on a stock that's currently at a loss for it to come back up. I think generally though, it comes down to just looking at the stock again as if I don't own a position and thinking "would I buy this? is there potential here if buy this?" and if the answer is no then it's probably time to sell. Note that buying a stock when you have none of it is not the same decision as buying more of a stock that you already are in, so try and parse out that difference.

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