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Here's a simple scenario I think we all may have been through at one point or another: your friend, neighbor, or family member buys a new car! And it's not just any old car, it's a slick, luxury car that turns heads and inspires envy. Now everyone in your community, neighborhood and friend circle is talking about it.
 "He must have hit the jackpot!"
"I wonder how they can afford a car like that?"
"No way he's making that much money. Let's see, how long before repo man comes for it!"
"Maybe he's inherited lots of money?"
And so on, and so forth. The above is an example of the plain and simple human psychology of envious thinking, over assumption, undermining ability of others. But it's also a simple way to explain what speculation is. Is this speculation what investment analysis is all about or is the assumption the end result? To do a better analysis, we first need a bit more evidence, which we can get by talking to the family whose bought the new car. You may seem them at a gathering or out at the grocery store and say, "Wow! You got a new car!" And they'll say something along the lines of: "My old car started costing us too much money to maintain."
"The dealer gave me a good trade-in price for my old car."
"The new car is eco friendly, and will cost us less in fuel."
Or, if you're particularly close to them they'll say, "We're only paying $XXX for this car each month, which is super affordable for us."
We've all speculated about our friends and family member's finances at some point or another. I'm using this analogy not to point out flaws in social customs, but to highlight what you as an investor should be doing each time you're making an investment. Don't just speculate; ask questions! After asking more questions and doing more research into the family's thinking process, you can now properly analyze whether they can make the payments and if it's a good move for them financially. My point is this: from now on every time you make an investment, I want you to start thinking of it from the car owner's perspective, about making a investment decision based on company's outlook and if the market is trading the stock with same sentiment as you anticipating!. Ask questions and do research. Don't think from the community's perspective; that is what social noise is all about! And to an investor, social noise can be very bad. Many investors fall prey to social noise, which is like a blind man seeing the world through someone else's eyes. In this way, your decision will never quite be your own, and if you cannot control your emotions and see the world through your own eyes, at least let the computer give you a simplistic view of the current investing environment. Lucid-trend can do this for you by our trend-following method, and you'll be able to see in one glance whether or not a certain stock is a good buy for the day. |
Written by: Raj Patel
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represents Accidental bull breakout also referred to as New Sun.
represents Bull run
represents Bull Breakout also referred to as an Emerging Sun
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