Are you Abhimanyu of our times?
Abhimanyu is very well known character from Mahabharat. Please read detailed story about him on Wikipedia.
He is classical example of how much partial knowledge can be destructive to an individual and society. Here is small brief about his partial knowledge about Chakravyuha. It is believed that while his mother was pregnant with him, Krishna told Abhimanyu’s mother the technique to enter in Chakravyuha and child Abhimanyu listened it inside mother’s womb. But before Krishna would tell her the way to get out of Chakravyuha she fell asleep and hence Abhimanyu could not listen to it. During his teenage age he fought Kurukshetra war where he was made to penetrate Chkravyuha but as he did not know how to come out of it he was killed by Kaurava.
Similar to Abhimanyu’s situation most of us, individual investor, get lot of half backed financial news / stories / articles which influence (read Confirmation Bias) us to get into buy some shiny new stock. It’s certainly not a bad idea to give attention to those stories, but you as an investor has bought something on a set price, on which only you know whether you will make profit or loss on it when you sell it on current given price. And most likely when that shiny stock turns into a bad free fall it will not be covered by any of those financial wizards, and you will left to bear losses.
What is cure for this situation? Is not paying attention to outer world for stories a good idea? Certainly not. Instead, as I understand, we should buy shares of only those business where if we are made CEO any given day without prior intimation and we have fair chance to succeed. As successful business usually enters market with some sense of exit plan and risk tolerance, we as an investor also should get into buy trade with set exit plan and how much risk we will tolerate. For example, buy a shining share at 100 right now to make 20% profile in a year but if price of it falls more than 10% in stable market condition then I will sell it and book my losses. That’s the exit plan which none of current age Abhimanyu has, and destiny does repeat history but certainly our Abhimanyu does not get killed instead he left to bear losses.
So, please do ample of research before getting into any stock and have one (or two) exit plans in place to avoid being Abhimanyu of our times.
Originally published at The Simple Personal Finance.