Lessons from Golden Haven

During the listing of Golden Haven Memorial Park, Inc. (HVN), a reader sent this desperate message: “I have invested some large (amount of) money in the said company … and was wondering if you could give me insights. I am [losing big] now since it’s plummeting. My current average remains at P23.00 per share and I am really worried if I should sell my shares already.”

I gathered he bought on the day of listing at P12.50 per share. “We then bought our position once again when it peaked at P23, which … was a stupid mistake.”

The regret of selling early and the enticing show of Golden Haven’s strong opening the following day certainly made the investor to buy back.

One must always be mindful of “risk tolerance.” In plain language, this is akin to one’s rate of return that will prompt him or her to enter or exit an investment in order to prevent losses.

The most simple of techniques of “risk tolerance” is that of legendary living investing great Peter Lynch, who became popular through his book “One Up on Wall Street” published by Fortune Magazine.

Lynch said the secret behind his success was very simple. “He sells when the reason behind why he bought the stock is gone.”

Another is by Dr. Alexander Elder, also a professional trader, who uses more mechanical methods.  Elder first worked as a psychiatrist and professor at Columbia University.  Not long after, he learned about stock trading.

Elder uses certain technical analysis milestones in taking profits or losses.  For instance, knowing he certainly can’t foretell the future, he usually sells about 50 percent of his stock position when he has already realized about 30 percent profit.  And he sells the rest of his position when it goes beyond another 30 percent profit or until the price of his stock starts to correct or retreat.

Fundamental analysis “predicts” price direction and the general magnitude of the movement.  However, it will rarely indicate when price will advance or decline.  It will not also exactly tell how far prices will travel.

Technical analysis, on the other hand, claims to be capable of giving or signaling the direction and timing of stock prices.  Nevertheless, it falls short of giving an indication on the magnitude of the anticipated price movement.

Bottom line spin

Based on the two approaches mentioned above, you must:  Assess your financial resources to know if you have enough money to play with.

Rash decisions lead to losses, little patience leads to opportunities missed.

You must have a sense of reality. You must be able to distinguish the “what is” from the “what if.”

Develop an open mind and collect information that will lead you to an informed decision.  Lastly, determine your investing or trading objectives.

(You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)