Tuesday, December 11, 2007

A Quick Tip When Trading Individual Stocks

I sold 75 shares of Best Buy (BBY) today at $53.51 right before the Fed announcement. Lucky, in hindsight, although I wasn’t trying to time the market and I had no idea what the Fed planned to do.

With the DOW closing down 290+ points, it’s easy to see the market had priced in a half-point cut, but only got a quarter-point cut. If you’re a contrarian, now is not a bad time to start indexing…..

Selling Best Buy had been in the works for months—the Fed announcement had nothing to do with it. However, the subprime mortgage mess did influence my decision because when consumer spending drops from the fallout, companies like Best Buy suffer. During rough times cash is king, so today offered a nice exit along with $4,000 cash.

The lesson from today:

1. Don’t try and time the market—meaning don’t buy and sell because you expect the Fed to cut rates, or because you think you know what a company’s earnings will be. From personal experience, the small investor cannot time the market relative to big players (hedge funds and other institutional investors), so getting emotional and acting because you think you know makes you the star of a loser’s game—and you will lose more often than you’ll win—trust me…

If you plan to buy and sell stocks, do your homework, have a plan, and understand the reasons behind your decisions.

More to come on this topic……

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