Golden Rules

1. Don’ts

Don’t let anyone play with your money in the stock market. If you don’t know how to play, please learn!

Don’t indulge in “would have” or “should have” in the stock game. Only losers do that. Try to learn a lesson and move on. There are always new opportunities tomorrow.

Don’t buy or sell because your friend or an expert says so. You have to decide for yourself even though you may be wrong. So learn how to make smart decisions.

Don’t get immersed in technical details about the stock market. They are misleading at worst, and outdated at best.

Don’t waste your energy looking for insider information. It is beyond reach for small guys without tons of cash, shares, and power.

Don’t get emotional in the stock market. The big guys win because they are cold-blooded, conspiring, and well coordinated, in addition to having great resources.

Don’t buy when the price is falling because you cannot see the bottom. Many small guys commit this fatal mistake.

Don’t buy and hold as encouraged by the big guys except when the company is on a clear growth path. Buy and cash out when you can make a reasonable profit. You can always come back and buy some more after the price has fallen.

Don’t buy when the price of a stock rises for a few days leading to the release of the quarterly earnings report. Chances are it will fall on the release date. And vice versa.

When you buy options, you are limited by time due to the expiration date. Self-imposing a time limit in the stock game is never a wise idea. No wonder the big guys invented the options system for the small guys to play.

The big guys also invented the short-sell system for the small guys to play. Don’t fall into this trap unless you have acquired enough experience. Short selling is dangerous for three reasons. First, stocks have no real peaks. A stock can rise and rise, split and split. That will make short sellers lose everything if they stay in there. Second, short selling is expensive because you must short sell at a high price and pay an interest for borrowing the stock from your brokerage company. Third, the big players know the aggregate short sale volumes and prices through the brokerage companies. They know your anxiety. They will make you lose by pushing up the price.

Don’t buy penny stocks because you have better things to do. Betting on a dead or dying company is not a viable proposition. In the penny market, you can catch a price to buy, but you can hardly catch a good price to sell. If you have limited capital, why not buy a big company whose stock has been beaten down? Although the company is on life support, should it survive, the turnaround will multiply your bet many times.

2. Do’s

Stock price moves like the Waltz or Tango. During good times, it advances three steps and backs one, punctuated by a few pauses. During bad times, it backs three steps and advances one, again punctuated by some pauses. The point is not whether it goes up or down in a given day, it is whether you are able to see the trend.

It works to your advantage by going against public sentiments because they are usually proved wrong. So when everybody says buy, you sell. When everybody says sell, you buy.

You can never predict the highest or the lowest price for any stock even though you may strike luck sometimes. So play carefully and cash out when you can with a reasonable profit.

Small guys only win by following closely what the big guys do. So you must figure out big guys’ behaviors first.

How can you tell when the big guys act? You just can’t! But you know their motive: profit maximization at the expense of small guys. This means they have to seduce the small guys to buy something they have already bought in huge quantities.

Small guys as a group has inertia. It takes time for them to be gradually seduced, usually in several months. Can you figure out the rest? Conclusion: Your window of opportunity normally lasts for several months. Beyond that, you put yourself in unsafe territory.

When you buy a stock, ask yourself when the last highest and lowest prices occurred. Make an intelligent guess as to the next ones. Without this most basic historical perspective, you are nowhere.

Act short term with a view to build long term.

When you buy real estate, the key is location, location, location. When you buy stocks, I’d say trend, trend, trend.

All parties must end. Come to the party early, and leave well before it ends.