"股市有风险 投资需谨慎", everyone has read this statement everywhere. But, few has taken it to heart.
The government and the brokerage firms post this statement everywhere, not to help you become a better investor, but to lay off their responsibilities, so that when you lose big time, they can say "Well, we have warned you, 股市有风险 投资需谨慎!", implying that if you lose money in this market, you cannot blame them.
If you cannot blame them, who should you blame then? I believe that you should blame yourself.
Indeed, to be a consistent winner in the market, that's exactly the attitude you have to take. You should indeed take full responsibility for your own decisions and actions. Making money in the market is not easy. The stock market is likened by many to a battle field, filled with rumors, false information, and reversed tips to midguide you, so that you can lose your money (so that others can collect your lost money). In the end, out of 100 people, probably 80 would lose, 10 break even, and 10 win. And out of these 10 winners, 8 probably win due to luck, and only 1 or 2 win by his/her skills in the market. Everyone knows this subconsciously, but everyone somehow believes that bad luck will happen to others, but not him/her.
The investor's deadly enemies are: Ignorance, greed, fear and hope. Recently, to many people's rude awakening, the Chinese great bull market turned tail, and goes straight down. Many people couldn't believe what they are seeing, and they become paralyzed, and then they rely on hope: they hope that the government will save them, they hope that the infusion of tons of cash from the Chinese central bank will stop the down trend and bring them out of the trap, they hope that top government officials will do something for them (in fact, the government has taught you a very good lesson this round: when the market's tide turns, even the government can't stop it). Well, in a few short days while millions investors were hoping that someone, other than themselves, to save them, the market went lock-limit down a few more days, causing these investors to lose many more billions. What these millions investors should have done is to observe that the market is going down, and cut the loss and then sit on the sideline - "HOPE" has become a big enemy for many people in this market. Hope prevents them from taking timely action. Unfulfilled hope, collectively, will turn into desperation and finally fear, and the investors will then dump everything, which creates the very bottom - we see this coming near every day.
This Chinese stock market crash might be something new to many of the new participants, but it is nothing unusal when you look at the history of markets, not only in China but in other countries: the 1907 "rich-men's panic", the 1929 crash, the 1972 to 1974 bear market, the 1987 crash, the 2000 to 2002 tech bust, the 2008 subprime crash in the US, the 1990 Japanese stock market crash, and so many other examples. So, why so many people got caught in this devastating crash this round without selling and with lots of hoping? Jesse Livermore said it best in 1923:
"The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you - you hope that every day will be the last day and you lose more than you should had you not listened to hope - to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the averageman does."
See, investing successfully is not easy: you have to go against your natural instincts. So many people lose in the market because it is so damn difficult to go against one's natural feelings.
But, there is light at the end of the tunnel. If you have lost big time, you should take this opportunity to learn about the market and even more importantly, learn about yourself. Learn about the market, so that you know what an animal you are tackling (I can assure you, the market behaves very very differently from what you "think" or believe that it ought to). Learn about yourself, so that you know how you really behave in the market in different scenarios: what's your risk tolerance level, how do you feel about missing an opportunity, how do you feel about getting out too early, what is your feeling when you lose, how about staying with a winner too long (because you think that it would go even higher) and it turns down, and finally becomes a loser? And so on and so forth.
Yes, as you have realized, making money is not easy in the market, yes, you are right, the market is tricky. But, making consistent money in the market is possible. Think about it, if so many people have lost so much money in the market, who took it? Well, there are consistently successful investors in the market collecting the lost money from the millions.
We have been writing about this market and we have invested in this market and we made money. How? First, we developed a proprietary index system which tells when a bull move may have started (we are never 100% sure until the move is over), and once we have that signal, we start to buy individual stocks (and may buy index futures as well. How to select the stock to buy is done by our individual stock system, which we may explain in another article in the future), then we cut the losers and ride the winners, until our capital is all deployed in winning stocks (remember, the losers are cut). Then we sit tight, until either the stocks says "sell" or the index says "sell", then we sell our stocks (and may short the index futures as well). Then we wait (in cash, or very few stocks), until the index says "buy" again. At all times, our risk is tightly controlled. Risk is controlled in several ways:
Figure 1. How we traded this market successfully and safely
We do not buy until the index says "buy", this reduces the risk of buying stocks in an unfavorable market environment, like now
We never put more than 10% of capital in 1 stock, this mitigates the risk that the stock stops trading (like many stocks are experiencing right now) or is being locked-limit down and we can't get out (like 1000 plus stocks are experiencing right now each day on most days)
If we lose 10% on a stock, we get out as soon as we can (if we can)
If when we enter stocks inititally, we experience muliple losses in a row, we reduce the size of the next few entries, until we stop trading (when this happens, it is because we may have a false positive index "buy" signal, i.e., our index model says "buy", but in reality, the market may soon turns down and our model would soon generate a "sell" signal).
Making money in the market is not easy. Otherwise, everyone would fly to the market, as many did in the past few month, and then the market has nobody left to buy, then it goes the other way, causing most people who join late to the game to lose, big time, as many have found out recently.
股市有风险 投资需谨慎, it is a true statement. The only problem: it doesn't tell you how to be 谨慎. I believe that "谨慎" means that you really have to be selective in when to buy, when to sell, and to ALWAYS control risk. Risk is a serious business in investing, if you don't take care of it right, it will ruin you in the end.
Although making money in the market consistently is not easy, it is doable. We have been doing it for years. We have developed our proprietary systems, and these systems guide us in the market. We move according to strict rules. We try to remove emotions from our trading, because emotions/feelings in the market are not reliable and they often backfire.
Our company is dedicated to world-class education for successful investing in stocks, commodities, futures, options markets worldwide. Write to us, and we may turn you a consistent winner.