Value for money you must insist
- Insist in buying stocks that have a strong balance sheet, good dividend yields and a good business modal. The current ratio must not be less than 1. It must be net cash positive as well.)
Buying in a downtrend you must resist
- Don’t buy in a downtrend. Prices move in trends. A trend in motion is assumed to continue. So remember, buy only in an uptrend, not in a downtrend. Wait for a downtrend to end before you buy.
The trend is your friend
- You must not go against the trend of the market. Never swim against the current.
Follow it to the very end
- A trend can continue for a few days, a few weeks or even a few years. As long as the trend is up, you must stay with it. Many people make the mistake of selling early in an uptrend. They did not capitalise on the trend. As a result they missed the major part of the profit. This is many people’s mistake. Don’t make it yours.
Holding on to a falling stock is unwise
- A stock that is in a downtrend is likely to fall lower. Especially for traders, they must quickly cut loss. Never turn a trade into an investment.
Cut your losses quickly is advised
- An early loss is the best loss. So sell quickly in a downtrend.
Never kill a golden goose when you have one
- When you have a good stock, hold on to it. Don’t sell for a small profit. Keep it for the long term.
Never sell prematurely, let it run for once
- Never sell early in an uptrend. Hold on until the trend ends.
Undervalued unpopular stocks are never a fancy
- Many undervalued stocks are not in demand as they are ill-liquid. Many people do not know them because analysts do not highlight them.
Glamour stocks are the choice normally
- Majority of market participants are small time traders. They usually follow the herd without knowing what they are buying. Their mentality is: When many people are chasing a stock, it must be a good stock. So, I might as well follow.
Join the crowd, enjoy the ride if you wish
- If you want to have fun and excitement, go ahead, enjoy yourself and participate in the buying and selling.
Be careful though, lest you fall out and vanish
- When you join the crowd, be careful, as you are likely to lose all your money
The market is most tempting at the top
- At the last stage of a bull market, news is good; prices move up every trading day. People rush in to buy. You see many of your friends making fast money. In such a scenario, the market is very tempting as easy money seems easily made.
Lock in your profits before volume has a good drop
- When the market is in euphoric mood, volume transacted is very high. This is the time to sell and take your profit. When the market reverses, volume will drop very fast. So don’t wait for volume to retreat before you sell.
Sell your stocks when you love them most
- When your shares are highly priced and greatly overvalued, you will love them most. Because of the high price, that would be the best time to sell.
Take your money and let the deal be close
- Sell to take profits, and call it a day
Buy when volume traded is at its lowest
- When volume traded is lowest, prices are normally very low as well. So, you should buy when volume is very low.
The market will then be at its dullest
- When volume is lowest, the market is dull and boring. People will shy away from it.
Investors should buy low and sell high
- Investors are people with lots of idle money to buy. So they can afford to buy and wait for good times to sell
Traders should buy high and sell higher
- Traders are people who want to see fast money. When the market is at the bottom, you will not know for how long it will be there. So it is better for them not to buy until the market picks up.
Someday, you will know what I mean
- One of these days, you will understand why investors should buy low and sell high, while traders should buy higher and sell higher.
By then, you are a stock market dean
- Once you know the interpretation, you have become an expert of the stock market.
The above poem was written many years ago under the heading Stock Market Wisdom. I hope with this interpretation, people will understand it better.
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