10 June 2011

Pick the stock you are most comfortable with

As contrast to Fundamental Analysis and Technical Analysis, I am an investor who likes to invest in shares with I am most comfortable with.

The reason is because I like to hold for a stock for a long term period. If you are based on Technical Analysis, it teaches you to sell a stock when a signal appears. However, it doesn't tell you why the signal appears and you have to figure it yourself. It could be due to a market sentiment, or it could be just a movement by a butterfly (Random Walk theory).

So, i f you at fundamental analysis, it will teach you the characteristic of risk & return. However, from Graham's opinion, we cannot judge a stock or a portfolio by risk & return characteristic. We should judge a stock based on how familiar we have for the stock / portfolio we own.

This comes from the perspective that we are doing a business with the other stakeholders in the company. For example, some people do not like to invest in a small cap size company which is controlled by a family, some do not like to invest in gambling sector, some do not even like to invest in cyclical sector due to their risk appetite. Some cannot sleep well if they invest in shares market. Some likes to invest 100% in stocks without any penny left in his bank account.

So, my experience tells me that, if you want to invest in long term and achieve a very high return, please try to do more homework and pick the stock you are most comfortable with. O course, provided your intention is to be a long term investor who wish to achieve a great result from holding your stock for a long time.

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