I saw this interesting short passage in a forum asking for stock recommendations. Let us call him Mr A. Needless to say, Mr A is hoping to get some easy resturns. He claimed to be a retiree, and was ‘concern of the volatility except for blue-chips’. Frankly, if we want to be in the stock market, be prepared for volatility. It does not matter whether they are blue chips, mid-caps or penny stocks. As claim that blue-chips are not volatile, I don’t think so. They are just as volatile. Even extremely high-price stocks like Jardine C&C can move 80c to $1 on certain days. The banks can move between 40c to 60c in a single day. Aren’t they very volatile as well? Mr Market has no eyes. He does not know whether you are a young rookie or a veteran player. What Mr Market knows is that he has to move every single day. Stocks move up and down depending on company performance, sector plays, economic outlook and general sentiments. In fact, at the point of writing, the super-penny stocks are starting to move. These super-penny stocks, generally, plagued by high debts and low profitability, seemed to be moving up! I am quite sure if the super-penny stocks are moving for a while, Mr A would forget what he says in the forum and start to follow the market, right?
Generally, a player who asks for a recommendation do not have a proper investing strategy nor discipline to trade properly. In other words, he does not do his due diligence. He simply moves from stocks to stocks. By the time he catched on the news, monitored for a while and finally moved in what was considered a ‘perfect timing’, he might be in to hold the last baton. Just by reading that short passage, I can tell that Mr A has some limiting beliefs sub-consciously, eg. penny stocks are volatile, blue chips are expensive and perhaps time-frames are too long. If Mr A gets into a stock, he expects the stock to move up wthin a week. Otherwise, the one who recommended him is considered to be ‘buay zhun (不准)’ In fact, there are never short of stocks recommendations out there. Whether in investingnote, in Facebook or any social media, we can see many stocks being mentioned. He could have easily follow one of these recommendations to do his trade. But, do be careful, these trades do not come with responsibility. After all, you do not pay ‘the expert’ when you gain, so why do you blame him when he makes a wrong call. Remember this, even if the recommendations were accurate, they may be suitable for the expert in terms of cost, time-frame and trade frequencies, but it does not mean that it is also suitable for Mr A. In fact, the very good ones may be the ones who were quietly doing their trades and laughing on the way to the bank, who knows?
Instead of looking around for recommendations to gain quick money, it may be important for Mr A to know himself better. （知彼知己、百战仍不殆) In fact nobody knows better than he himself in terms of how deep is his own pocket, his investing holding period, expected return, the extent of the volatility he can stomach etc. Mr A probably can do better by focusing on a watchlist of say 10-15 stocks, and be ‘expert’ in those stocks. Day-in and day-out work on those stocks. Perhaps, he can gain signifintly from there.
(Brennen Pak has been a stock investor for more than 25 years. He is the Pricipal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”)