Читать книгу How Not to Lose a Million Dollars in Stocks - Melvin Hirsch - Страница 5

Chart courtesy of TeleChart- www.worden.com

The stock had a wonderful move up to 36.73 on November 5, 1997. It appeared the stock was headed much higher. This surely was a top company that could be safely invested in for your old age. Well, if you bought it on November 5, 1997 and sold on March, 9, 1999 – 16 months later, at 15.15 you would have lost 59% of your investment!

Let’s analyze what happened, again try to get into the head of the investor. Maybe there was an actual reason for the stock to decline or maybe not, it is irrelevant. People determine the price, buyers and sellers, what is moving them to buy or sell is GREED (expectations to make money) and FEAR (worrying about loosing money). Maybe there was a moment on November 5, 1997 when some bit of news was announced that caused some investors to initially sell. Those investors had purchased at much lower prices and they wanted to cash out. Investors that purchased at the higher prices on November 5th and the days shortly prior were now struck with FEAR, they were loosing money. Some sold bringing the price down to about 28. At that point investors saw the price steady and expected it to rally back up to the 36 area.

When the price broke down through the 25 area the rush to get out was on. The price rapidly slid to 18. Our initial investor now hopes for at least a rally back to 25 and holds. Finally when it breaks down to 15 he is absolutely panicked and sells to salvage what little is left of his investment. Note that in analyzing this it was not necessary to know anything about the earnings, product development, balance sheet, debt ratios, or any other financial factors. The analysis is solely based on investor reaction to price change. Further in the book we will start examining the specific price patterns that investors develop. Note it is investors – buyers and sellers - that develop these patterns and they are repeated and repeated endlessly. For the moment I just want to completely dispel any fantasy you may have harbored about the safety of investing in blue chip stocks

Let’s look at one more blue chip – AT&T: