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Six Important Aspects When Investing In The Stock Market

1233 words - 5 pages

I have been interested in trading and investing in the stock market for the past seven years. I have competed in various contests to test my strategies and have won several. Over these years, I have observed many trends in our volatile markets. News is what moves the markets. Not just local news or news within the United States, but global news will affect the markets. It is good to stay informed on the dates and times that economic news will be released. When economic news is positive, the markets will usually move upwards, most individual stocks will follow that trend. The opposite is also true. This pattern also holds true for stocks in various sectors. When biotech companies release clinical trial news, other stocks in that common sector also react. From the Yahoo message boards to analytical research data provided by companies, everyone perceives news very differently. In the stock market, emotion tends to take over where skeptical thinking should be in place. Many traders/investors make rash decisions about stocks before doing their due diligence because they are afraid of missing out on a possible great opportunity. Noticing these trends in the market can be very beneficial to the astute trader.
When speaking to other investors/traders, it is funny how observational selection comes into play. Many traders/investors speak of their massive gains in one or two stocks, yet, fail to mention the losses taken on countless others. Observational selection is a very common practice in the stock market. Specifically on the message boards you will find people pumping a stock after news has been released. This makes the news seem much more important than it actually is. Along with praise for the news, comments of how undervalued the stocks share price is, are the norm. If a stock has an extremely low float (not many shares available to the retail investor) the move in stock price can be astronomical. I can personally think of countless times where I have seen traders/investors hyping up a company and how they have managed to make ungodly returns on specific stocks. They try to lure others into buying or selling the stock by augmenting the positives and keeping quite on the negatives such as a reverse split (one share for every (ten) you own. The number in the parenthesis can be any amount the company and shareholders approve). A great example would be an articles put out by websites such as Seeking Alpha that exudes all the positives yet fails to mention the negatives. Much of the time when a Seeking Alpha article is released you can watch the stock move in relation to the news. The same goes for Jim Cramer from CNBC. These methods seems to work all to well because people want to believe that they can get rich too, or that this stock is a sure bet. I personally think that observational selection is useful to me because when I find a stock that is overvalued due to the hype, it becomes a good short (betting that the stock price will fall) option.
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