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FOOL GLOBAL WIRE (Mar. 17, 1997) -- The subject of day trading comes up so often in the "Ask a Foolish Question" message folder, I felt moved to elucidate. People want to know why we don't advocate "day trading" or "momentum trading" here. My opinion is, if you have to ask why, you probably shouldn't even attempt it. The learning curve here can be financially devastating. "Momentum" or "day" trading is the polar opposite of the fundamental methods we advocate here. Momentum trading is buying stocks based on the market action. It also uses technical analysis methods that involve graphs and charts and the stars and the neighbor's aching corns. It assumes that the upward movement in a stock price is telling the shareholders something they need to know. So, if the stock is on the move, this kind of trader does not wait for the news to buy or sell. Here at the Fool, we know how hard it is to call the market. It is not the easiest thing to know when to buy and sell a stock. And believe me, we get asked daily. We don't know where the market is headed on any given day, but we do know what has produced solid investing results historically. How difficult should your investing be? Should you review your holdings once a day? Once a month? Frankly, once a year using a proven investing method works for me. You need to know the company that you are investing in. Research the management and their performance, and then decide whether you want these folks running your company. Is the company undervalued compared to what it is worth now and what it will be worth in the future. Is this company in the right place at the right time? All of this and more should be taken into consideration before you throw your hard-earned dollars at an investment. Speculating is not the way to achieve financial security and certainly not the place to put all your eggs. It relies on a short-term outlook and a certain herd-like mentality. Who would not want to buy a stock on the upswing? Who would want to buy a stock that is dropping like a rock? Many times speculators can lose sight of the fundamentals and be swept off in a deluge of imagined profits that may or may not materialize. On the other hand, these speculators do add a certain excitement to the market. Thank God they are around; they contribute to the volatile ups and downs we agonize over daily. On days when my portfolio is on the way down, I have been known to compulsively check stock prices every 10 minutes to see if I should sell everything and cut and run while I still have the opportunity. But then my Foolish side will say calmly to me, "Dawn, get a grip, this is only a momentary cyclical rise and fall. To the patient investor come the spoils of long-term growth." Of course, then I get up and eat some chocolate and the "urge to purge" my portfolio goes away. Now, if you resist the urge to go out and buy Hershey's stock, I've done my job.
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. |
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