Over the past week or two I have been diligently searching for a car to match all my innate desires. During the time-consuming process of deciding where to put my hard-earned money, I came to the conclusion that both investing and purchasing a used luxury sedan have many similarities. Many of us have bought vehicles over our lifetimes and the likeness between trading and purchasing a vehicle can lend itself to improve your investing ability. For those of you unseasoned in the arena of car buying this article may also serve as a means to improve your car buying ability ensuring you are not stuck with a lemon in the future.
When one sets out to purchase a vehicle they are often caught up in the moment. The excitement of buying a new car (or pre-owned) is unquestionably extremely exciting. In particular, when you have worked long hours to make funds available to purchase your dream car, the pressure to purchase immediately overwhelms the buyer. Many people fail to realize that they should go into car purchasing the same way in which you came into the funds that allowed you to make the purchase patiently. Patience is a virtue or however that outdated saying goes. Though the saying is overplayed, it suggests that rushing into any endeavor will have negative repercussions. So in regards to buying your dream car, searching diligently and giving the task at hand adequate time are essential. Ensuring you do not rush your decision will net you the best end result. The trading parallel is almost identical. Many traders, in particular new ones, get caught up in the hype, forcing their moves. The best of the trading community can wait out the pressure of needing to make a trade, knowing that another trade (or investment) will reveal itself to the patient stock market watchman. Sometimes the best trades are those that are slow and steady. The big upside movers can reverse on you just as fast as they went higher, look at JCP over the past few months. On the other hand look at another retail giant Nordstrom, where slow and steady served investors well. Patience can take on many forms when it comes to investing, either way you cut it, the best investors are patient.
Many traders fail to realize the importance of price points. When it comes to buying a car one is forced to stick to a price point, spending more than you have is just not an option. Stock prices on the other hand fluctuate often and readily, though the best investor knows what he is willing to pay for a company. When you go into the dealership or meet the guy off Craigslist, you have a set amount you want to spend. The smart car buyer also has researched the vehicle and knows what the car is worth ensuring that he or she does not spend more than the value of the car. When I buy a car I prefer to purchase under the book value, maybe due to my innate desire to get a good deal. Valuing stocks and cars are worlds apart. When it comes to a used vehicle, or new, you simple look up the NADA value and go from there. There is no real valuing tool for stocks. Though many say that the market itself values stocks, undervaluing names that lack future value and over valuing names that have the most potential. The most successful of the investing masses have the innate ability to choose quality entry and exit price points, rather than clicking the buy button and hoping for the best. Don’t be that guy who rides the winner from $20 to $100, then back down to $10, making it a net loser. Know what a stock is worth to you and what you are willing to pay for the company. Learn to have price points that you stick to, that work for you, in both your entry and exit, ensuring you don’t pay too much or never walk away making a winner a loser.
Investigation, one of the more finer points that both traders and car buyers often overlook. I see the story all the time, people buying companies and not even knowing who the CEO is. They see some buffoon on CNBC chat up some company, they buy in thinking they will get rich quick. Knowing details about your CEO is merely scratching the surface when it comes to delving into the company you wish to have in your portfolio, even if it is for a short time. You come across it on twitter and in the blogosphere, many people searching for information about the next big thing, hopping on someones coattails, but doing no research of their own. That my good sir is comparable to driving up to the dealership pointing to what you want and driving off. Yes, I know some of you do that. That may be acceptable when going and buying a new Mercedes. Though for any other car, more thought and investigation needs to go into the purchase of a vehicle. When you purchase a vehicle, maybe you run the carfax, look for issues throughout the vehicle. In my case, I like to take my investigation to the next level. I take my mechanic with me and we run the vehicle through its paces, put it up on the lift, run compression test on the engine, and so on. Similarly, that is how I like to add stocks to my portfolio. A trader who trades on a whim should be in Vegas, a trader who analyses the finer points of a company, will be rewarded. My research and analysis ensures that I don’t get a lemon, because I only like lemons in my lemonade. The same mindset can be the key to your success when trading. Knowing the ins and outs of a company can only lend your portfolio to outperform the averages.
Does your Maserati go 185?
Photo by wollombi