Thursday, May 09, 2013

The casino always wins

When you go to a casino to gamble, you are more likely to lose than to win. More fortunes have been lost than won by people who frequent casinos. This is evidenced by the fact that casinos rake in billions of dollars year after year. Look and Genting as an example.

Do you know why casinos always win? Actually, the answer is quite simple. Casinos always win because you have to play the games accordingly to their rules. And you can be sure that the rules are always made in favor of the house. In other words, the odds are always against you. That's why you lose.

In the stock market, things are different. You don't have to trade or invest accordingly to anybody's rules except your own. Thus, it is imperative for you to set up your rules if you want to win.

My rules are as follows:

01. Insist on value when you buy.
This means you will only buy stocks that promise safety of principal and an adequate or at least a moderate return. The company behind the stock must have strong fundamentals and growth.

02. Never catch a falling dagger.
When a stock is in a downtrend, you must avoid it until the downtrend ends before you buy.

03. Always buy in an uptrend.
When a stock that you like is moving in a tight narrow side trend, keep a close watch on it. Buy in the upside breakout. If you miss that, then buy in the pullback.

04. Write down the reason as to why you buy a particular stock. If you don't have a good one, don't buy.

05. When you are ahead, don't allow fear to control you. A premature sale is a most common mistake. You can never become rich making pennies. Most people cut profit early and regret later. Don't be one of them.

06. Never buy liabilities.
A rubbish share is a liability. A stock with high debts and no earnings or dividend payouts are rubbish shares. These must be avoided.

Every one of us is different in character and financial standing. If the above rules are good for you, follow them. If you don't like them, choose your own.

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