Friday, July 30, 2010

Bottom Fishing

There are two mistakes that novice investors make with 'bottom fishing'. 

The first mistake is bottom fish too early.  'Bottom fishing' becoming ugly catching a falling wedge, and investor gets hurt, sometimes seriously.  A good example is the fall of Shanghai Stock Exchange (SSE) from its all time high of 6000 points down to less than 1/3 of its peak value of 1600 points.  When you 'bottom fish' when SSE had fallen 50% at 3000 points, another 50% drop in value is still in store for you. 

The second mistake is to go for the 'ultimate bottom'.  People wait for that absolute lowest price before they bottom fish.  When the ultimate bottom comes, nobody actually knows that's ultimate bottom, unless you can predict the future in exact details.  Then when the ultimate bottom has passed, and prices start to climb back, the novice investor thinks he/she has missed the golden opportunity and is unwilling to pay for the higher price.

The first mistake will burn a hole in your wallet, while the second mistake will make you lose the opportunity for good profits.

No comments:

Post a Comment