Red was color of last week. I've been watching S&P500 and Nikkei slide down due to market exhaustion. It wasn't a surprise that the local market emulated the activity. My portfolio slid down to - 3% in a week. Now, you would say, 3% is nothing. Yes it doesn't sound much if you are only investing cigarette money, as Jose Aranaz would call it, but imagine you have millions at stake. This would definitely change the picture. And if you study closely, 3% could've been your annual return in an SDA. I wish I have the latter but heck, I love watching the market rise and fall so the amount accounts to be miniscule.
Do I worry? Of course I do.. The market has been long due for a correction and I am just waiting for a catalyst to prime the adjustment. Last year, the Philippine market also had a dip in May. If you remain cognizant and vigilant, you would notice a recurring pattern during these months. I could not exactly pin point when but I think we are somewhere there now.. There has been a lot of profit taking in the last few days. The sellers are clearly winning. And I have to admit, I saw the signal but still remained affectionate on my holdings. Now I worry that I fell in love with my portfolio.
It got me thinking on my investment style. Why am I holding to sell when I saw a signal for a potential turn around? Some would say it is greed that holds grip. In some cases yes. But I think in my case, it is more than that. I keep clutching because I have developed a bond with them. Let's a look at one stock that I have - MEG
In March, the price - MACD line was diverging, the bullish momentum was diminishing. Same thing April with STS and price. I could've traded last March and April and played along the channel, made some extra, and forgot all about MEG. But I did not. Now it is testing the SMA 2 support with a potential to either bounce or break down. I still have it with me.
I had MEG for over 9 months now. I bought it with a target selling price of 3. Through this course, I have seen it grow, and it brought me delight to see it perform. It even broke my target. Watching the stock almost incessantly made me feel attached to it. It is more like parenting and seeing your child grow. That's the simplest analogy I can come up with. And when things like this happen - emotion creeps over logic, it is really a feat to let go.
Is it bad to fall in love with your stock? It would be oxymoronic if I say "if you think about it, yes". The governance of logic over emotion is always a grey area. But let me try attempting to be pragmatic over the situation. Forgive brute flinging to clear my judgment.
If you are a Fudamentalist, you take a look a the company financials, the management, and numbers to see if the business is sustainable and profitable. I am inserting a worksheet we did in Biz Whiz for MEG in our stock valuation workshop and MEG looked like this that time. Looked promising to me.
From a Technician point hower, you would care to take a look at the chart and the indicators like what I did earlier.
Or, you could marry both. Either way, investing decisions should be made based on analysis. Eureka! There you have it my friends. It is not so bad to fall in love for the right reasons afterall. The operative words here are "right reasons". Smart investors, like it or not, make informed calls that will always have a basis. When you fall in love with your stock, make it a point to fall in love with the right reason.
Ryan Ulysses Cruz
Director of Operations
Biz Whiz Business Training and Consultancy
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