Mindset: A pitfall that
beginner investors always make
Don't expect to get rich quick, unless you have some sort of
insider tip but if you had, you may not want to use it because then you run the
risk of getting investigated by the SEC or OSC (securities exchange commissions
of the US and Canada respectively). *cough cough Martha Stewart* It would
certainly raise red flags if one day you invest $10,000 and two days after it's
worth $20,000.
Another mindset to avoid is freaking out over minor price
declines, if your stock dropped 5% in one day and it's not because of any
negative news disseminated officially from the company itself, then relax
because it is probably going back up within the next few days. On the other
hand if the market in general is having a major crisis or about to enter into a
recession, you may want to sell at that point. What I am trying to say is that
there are going to be ups and downs, don't sell it because of a temporary drop
because what will likely happen is you'll end up selling when it's low and
getting back on the bandwagon when it's up (thereby realizing the loss, selling
low and buying high). Oh and a side note, if you sold shares of a company,
realized a capital loss and then subsequently bought it back within 30 days, that
capital loss is not realizable for tax purposes and is postponed until you get
rid of the shares for good (i.e. neither yourself or anyone related to you by
blood or marriage, buys the same shares within 30 days after you sold it).
Depending on which type of companies you have invested in,
here are some signs to indicate you should sell:
- Profits dropped significantly this quarter or fiscal year, and the decline looks to be a prolonged one such as dying market for the company's product & services
- Patent or intellectual property rights issues that can lead to a cease in production or their ability to sell their products
- Company management were implicated in a fraud case
- Consistently failed to meet analyst expectations on EPS and other earnings figures (these information can be found in your online broker's market research tools or on prominent sites like Zacks.com and Financial Post)
- More than one downgrade consecutively of analyst expected share price
- If there are lots more demand for Put options than Call options, again your online broker may or may not show this information but if it does, this shows that investor confidence is low
Next tip to be uploaded tomorrow, stay tuned!
-TT
