What goes up must come down?
Stocks that rise steeply in price and make new highs are viewed as expensive and overpriced. Sometimes they are, but you will also find the real winners here - stocks that rise 500 or 1000 per cent! Rather use the maxim:
What goes up may be a winner!
What goes down must come back?
Stocks that fall steeply in price, making new lows, are seen as being cheap and showing real value. Sometimes they are, but many stocks never recover. The market has a saying:
Dead cats don't bounce!
Commonly referred to as bottom-fishing, searching for undervalued stocks should be left to the experts: it requires a lot of research and expertise.
Averaging down
A related strategy is to buy more of a stock if the price falls after your initial purchase: if it was a good buy at the higher price it must be a real bargain now. What often follows is that the stock keeps falling ...... disappearing from the radar screens.
No-one has put it better than Edwin Lefevre:
Let him buy one-fifth of his full line. If that does not show him a profit he must not increase his holdings because he has obviously begun wrong; he is wrong temporarily and there is no profit in being wrong at any time.
Tips and Rumors
The quality of stock market tips is generally poor. Investors often become emotionally attached to the stocks that they hold and are not always objective about their prospects. They talk their stocks up, more out of hope than conviction.
Rights Reserved to IncredibleCharts
________________________
