If we break a stock down to its bare bones, it is simply a piece of paper and only worth what someone is willing to pay for it, regardless of your opinion, states Zaheer Anwari of SublimeTrading.io.
This is a critical concept to grasp. Ignoring opinions, including yours, is one of the first rules of sound investing. What actually counts are the following:
- Has the stock performed well in the past?
- Is the stock setting up to repeat that past performance?
- When is the right time to enter?
PayPal (PYPL) is no doubt a giant of a company, but its stock price has tanked 78% since last year. Below is the weekly time frame.
PYPL confirms no matter how much of a tech giant it is, and how much you believe in the company, if a stock is tanking, it is only likely to keep tanking. It will stop tanking once the market sentiment changes, which is down to market forces and where patience comes in. You will no doubt be familiar with one of the mantras of sound investing: the trend is your friend until the bend at the end. However, it is not well practiced and many catch falling knives.
Always let price dictate a market reversal instead of trying to predict it. This is how you avoid becoming lumbered with stocks that are losing you money with no exit in sight, hoping for a reversal that never comes. Just getting back to break even takes an eternity. This is why I always preach not to buy “undervalued” stocks and not get attached to brand names. Investing the undervalued way is costing you, and you simply have no time for that. Instead, look for stocks printing new all-time highs and outperforming the indices. It is a more straightforward and far more profitable approach, a winning combination.
I added McKesson Corp. (MCK) to my portfolio at the end of last year. It has moved up 55%, while PYPL has dropped 78%. Below is the weekly time frame.
Why did I buy MCK?
Because it has a solid history of performance, and it started printing new all-time highs. MCK is a prime example of investing in a stock based on probabilities, not feelings and brand name.
If you would like to learn more about how I find and invest in stocks like MCK, I am holding a live Stock Market Blueprint Training session on Tuesday, 8th November.
