Never Miss Buying the Best Stocks
Last week, I told you about possibly my greatest inaction regret. It was a trade that got away…a trade that could have been one of the best of my career. But because I couldn’t find the ideal entry point, I didn’t buy. I sat and watched as the market spiralled higher.
If you missed that video, go back and check it out. There’s every chance you’ve had a similar experience. But that’s not where the story ends.
I’m going to share another trade with you. You’ll see how missing a great trader has led to a better future outcome. I’ll also tell you how I use regret to weigh up a situation.
Okay, let me set the scene for this trade…
Now, you may recall 2017 was a difficult trading year. The All Ordinaries did very little for the first nine months. And I wasn’t immune to the tricky conditions. Many of my own trades were either giving back profits or in the red. It was one of those times when few trades were doing well.
So, on 18 April I got a new entry signal. It was for an obscure stock called Schaffer Corp. The company’s interests are in building materials, automotive leather, and property. I’d never heard of it before. In fact, SFC wasn’t even in the top 500 stocks that make up the All Ordinaries.
Check this out: This is what I saw at the time. Schaffer was in a solid upward trend, with gains of 43% over the past year. The shares were also relatively illiquid, and there were often days with no trades.
So what did I do? Well, after several months of losses, I baulked at buying.
My reasoning was the market was doing nothing, and prices would probably stall. I was also hesitant to buy a stock that would probably be difficult to sell.
Here’s what happened next:Schaffer shot up 15% from where I should have bought. My concerns that the shares would stall were wrong. I was left sitting on the sidelines.
Despite doing this stuff for years, I still make mistakes. Rather than follow my system, I thought I could get a better outcome by doing something else. Chances are you know the feeling.
One of the best things about system trading is consistency. If you have a bit of discipline, then your errors will hopefully be few and far between. But as you can see, they can still happen!
So the question was: What should I to do next?
Think what you’d do in this situation. Do you pay up, or do the words ‘I’ve missed it’ creep into your thinking?
Well, I’ll tell you what I did. I weighed up my possible regrets. On one hand was the regret I’d have if I bought and the shares fell back. I’d end up with a bigger loss than if I’d bought in the first place. This would be frustrating.
My alternative regret was about not buying. I could ignore the signal and stay on the sidelines. But what if this was the start of a big move? How would I feel watching the shares spiral higher?
It was a lopsided comparison. I knew the disappointment of a loss would quickly fade. My biggest regret — by far — would be missing an outstanding trade because I did nothing. The decision to buy was easy.
Here’s the final chart in the series: You can see where I got in. It wasn’t the perfect entry, but it was an entry.
Here’s the thing. A trade can have many buying points. You don’t need to get in on the ground floor to do well. If an opportunity looks good, the important thing is that you get in somewhere. While I was slow to buy, this was still one of my best trades for the year.
So don’t be too hasty to walk away if you miss a buying opportunity. Instead, weigh up your potential regrets — what will bug you more: a relatively small loss or a big missed profit?
As hard as it may be to buy at a higher level, at least be open to the possibility. You could potentially save yourself from a lingering regret.
So that’s all for this week. If you’re watching this anywhere other than my website motiontrader.com.au then come over and have a look. That’s where I have all the free stuff. I think you’ll like what you find. And if you liked this video, or even if you didn’t, scroll down and let me a comment.
Until next time, I’m Jason McIntosh, and let’s find some trends this week.
I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.