Common Investing and Trading Clichés
The Internet abounds with investing clichés, but some old adages are very much worth repeating. We thought we might indulge in some of the most common stock market and investing clichés and explain what they mean. Many of them are most than just catchphrases, but are gems of wisdom in the current climate.
- Buy on the rumour, sell on the fact: This is one you'll hear all the time. You'll often see stocks rise in the lead-up to a major announcement, only to fall immediately after the good news has been revealed. This is because savvy investors will buy stocks on the first sniff of good news and then take profits once the news has been announced.
- Never try and catch a falling knife: When a knife falls, it's better to wait for it to hit the ground before grabbing at it. The same goes for shares. There's no point buying a stock on the way down. Wait for a stock to stop falling before buying.
- Don't fall in love with a stock: Keep a cool head about the stocks you hold and don't become too attached. If you become convinced a stock you own is the best stock in the planet, it'll become hard for you to make rational decisions about it.
- If you're planning to panic, panic now: It's usually better to exit a stop when you first start panicking, rather than waiting until everybody else panics with you.
- You'll never go broke taking profits: This is a good thought to consider whenever you are trying to decide to exit a position or hold on for further gains. Essentially, taking profit is a profitable business.
- Sell to the greedy, buy from the fearful: This one's a simple reminder to not get caught up in the emotion of the market. When the market's high, sell. When it's low, buy.
- Cash is king: This one can be used in two ways. First, a company with solid cash flows is probably a better investment that a company that isn't earning money. Second, while shares, bonds and property can all fall, cash remains steady.
- Economists have predicted seven of the last three recessions: Doom sells. Economists are a gloomy lot. Don't get too worried about the numerous commentators claiming the world is ending – it probably isn't. Unless it is, obviously.
- Markets can remain irrational longer than you can remain solvent: Just because an asset appears mis-priced, this doesn't mean it is likely to quickly move back to an intrinsic valuation.
- If you can't sleep, sell: If you own a stock that's worrying you, it might be an idea to exit the position.
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