You've got to learn how to buy and sell stocks in order to make money in the stock market. You can't expect to buy individual stocks, hold them forever and make money. Eventually your stock will come down in price. This is because the stock eventually falls out of favor with the institutions that pump money into stocks which in turn drives up their prices. I wanted to show you an example of this specifically with a stock that I bought awhile back and sold today. This articles is part of a larger series that I am putting together called Buying Stocks - A Case Study. You can find the last four posts by visiting these links.
Stocks To Buy
Good Stocks To Buy
How To Buy Stock
Hot Stocks To Buy
You've got to buy and sell the stocks you find to take paper gains and turn them into real ones.
On September 20, I bought 30 shares of MSB for $33.33. Now if I was a buy and hold investor, I would ride this stock through thick and thin because that's what Wall Street has taught the vast majority of us to do. As I've said before, I think they do that because they know that most of their brokers have no clue when you should sell and their also probably too swamped to give you that kind of personal attention anyway. Going back to my rule that you should do what Wall Street does and not what they say, you'll learn that mutual fund managers don't buy and hold forever, they figure out when to buy and sell stocks in their funds. If you are buying individual stocks, then that's what you have to learn as well.
Learning how to buy and sell stocks is an acquired skill that combines your experience with some luck as well.
Today when the market opened, I sold all 30 shares of MSB for $40.75. At the end of the day, the stock had dropped to $37.09 for a 10.02 percent drop in the share price. I on the other hand locked in a 20.06 gain because I sold the stock when the stock's chart told me that something was wrong. This was part luck and part analysis. But this is the kind of thing you will find out when you start investing. You will luck into some things and you will learn your way into things. A while back I had picked up another stock that rose 25 percent and I didn't pay attention and it dropped like a rock. When MSB went up 25 percent from my purchase price, I thought it might do the same thing. It didn't do it right away, but I started watching it for signs of selling.
Learning when to buy and sell stocks properly will make you a lot of money.
If you look at the daily chart to the right, you can see that the stock had a pretty nice run even before I got into it. At point number one on the chart notice that the stock closed lower on higher volume (point 2). I was concerned then because this is a sign of selling. I noticed though that it closed at the upper range of the high for the day, so held onto it. A few days later, I noticed that it closed lower on higher volume again. At point 3, it closed at the low end of the high low bar on the chart on higher volume (point 4). This combined with the weakness in the performance of my watch list worried me so I put in a sell order this morning so I could lock in my 20 percent plus gain instead of seeing it disappear completely.
You can see by looking at the volume that it spiked when the price closed lower. This is your signal that institutions are getting out. You should pay attention to them. Once they leave, the price could fall futher leaving you holding the bag.
Keep learning about investing in the stock market and keep me posted.
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