Wednesday, November 11, 2009

Three Little Pigs In The Stock Market

The first Little Pig built his house using straws and it was a nice straw house. But when the bad wolf came, he blew hard enough at the straw house and it collapsed and the first little pig ran away. When we first buy a particular stock, it is no difference from what the first little pig did - building his house with straw. That particular stock that we have just bought is in the weakest position and is facing the highest risk. It is not sitting on any past realized profit but  facing potential losses if the market moves against it.


The second Little Pig built his house using wooden logs and it was a better and stronger house than what the first little pig built. But when the bad wolf came, he blew harder than before at the house and again brought the house down. When we buy back that particular stock again on pull back or correction, it is no difference from what the second little pig did - building his house with wood. Now, this particular stock that we have just bought is in a stronger position and faces a lower risk as it is now sitting on some realized profit and it will take more downside for us to sit on any nett unrealized losses.


The third Little Pig built his house using bricks and it was a very strong brick house. When the bad wolf came and blew at the house with all his might, the brick house remained sturdy and strong. After a number of successful stock transactions, we may have acquired a new pillow stock and we will never lose our capital anymore. It is a strong and steady house for all the three little pigs to live happily ever after.


http://createwealth8888.blogspot.com/2009/05/investment-by-nature-is-risky.html




So are you the third Little Pig?

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