In the previous article, I talked about how I fell prey to the bullish trap on banking. Even if it is a good company, if the timing is bad, your investment will turn sour. That is what I learned from that experience.
About a week after selling the bad performing stocks, I found another stock that felt great to me. We’re gonna talk about that particular trade of mine. If you have followed the previous articles of my journey, you know that I post only after selling the stocks to avoid any sort of market manipulation from my insight/ “recommendation.”
Prime Life Insurance Company Limited (PLIC)
PLIC gained a massive 10% on December 14 and hit the positive circuit for the day. This took the stock at the highest closing of the last three years.
The volume was impressive and the stock had broken out about 3% above the nearest resistance zone. A good signal, I thought.
I then bought a few shares at Rs. 885 per share.
However, little did I know that the stock was due for a correction. The stock began to lose from where I bought it.
This is what I learned:
a) A spike in volume isn’t always a buy signal. Sometimes, volume spikes occur at the end of a bullish swing. Technical analysts describe this as the last gasp of the bulls before the bears take over.
b) It is tempting to invest emotionally with the fear of missing out (FOMO). There are also a thousand other lucrative strategies that you make up in your mind which disturb your main strategy. For instance, my strategy needs a month of consolidation before I enter. I did not realize it at that time but my judgment was probably blurry because of the bullish craze.
c) The market can remain irrational longer than you can remain solvent. Damn. I knew the stock was gonna rebound. However, I had one month of investing timeframe for this stock for personal reasons. Thus, I had to sell it before a month even though this was just a consolidation and not a bearish reversal.
I then had to sell this stock at Rs. 812 after 17 days. This gave me a loss of about 9%.
Like I have already said in my previous articles, my whole point of blogging my journey is to remain accountable. It is embarrassing to post about one’s loss as much as it is pleasing to talk about profits. However, our main goal as an investor is to remove the emotional part and just stick to the fucking strategy.
Also, it is so easy to blame my judgment or the market trend after a loss. However, no strategy is 100% right. If my strategy worked 80% of the time, perhaps this trade of PLIC fell in the 20% of the times that my strategy gave losses. It is a normal component of trading. Losses and wins should not affect an investor’s mindset.
Stock investing is a long game, longer than we think. There are no winners and losses on each trade. After years of investing, you are either profitable or you are not.
Wow. Is that the best thing ever that I have said in this blog? Haha.