But, Online Investor, you say, I'm only human. Once in a while, I have to go with what my intuition says is right, forget the facts and the discipline. We know the feelings. We also know how expensive they are. One of the valuable lessons we've learned over many years of investing is that taking out some of the humanity, namely emotions and relying on hunches, leads to much better portfolio results.
Just last week, there was a perfect example of rumors and their damage. Nike is a stock we like and have on our watch list. We have a target price in mind where we would buy it. After months of waiting for our price, Nike started to move up quickly. Then the rumor hit: Warren Buffet is buying. This was never confirmed, as so many rumors aren't, but it sure sent the stock rocketing. The price went from $55 to $63 in a couple of days. Our emotions started to kick in: everyone else is buying the stock, maybe even Warren Buffet. We're going to miss the next big surge in this one if we don't jump on it now. Forget about the discipline of investing and buying issues at our price. Let's just buy the thing and watch it go up.
Then we remembered: we would only be acting on our emotions, leaving behind our established, well founded investing priniciples. The next day our good judgment was rewarded: Nike announced lower expected revenues and earnings. The stock tanked, not as low as our target price, but still, it lost eight or nine points. If it weakens more, then we'll buy it, as long as all our original reasons are still valid.
Did we know anything in that tumultous week that anyone else didn't? Obviously not. We heard a rumor (something you should never act on, whether it's Warren Buffet is buying a stock or a certain company is definitely, positively going to be bought out). The rumor wasn't confirmed. Then we read the company's announcement. That was a fact, and a material bit of information which means earnings are going to be adjusted downward, and hence, our price target lowered.
It's worth repeating: don't act on hunches or rumors or emotions when you're investing. Don't watch a stock run up and away from you, and then capitulate to the urge of missing out by jumping on board with the hope that this time you'll be all right. Most of the time you won't be all right. Your portfolio will be filled with high priced stocks, and you'll anxiously wait for your breakeven point so you can finally get rid of that dog. That's not investing. That's hoping. Don't hope. Invest wisely by using the financial information on the Web.
Stick to a disciplined plan of investing where you buy stocks only at your price, a price determined by the value of the company, not by the emotional siren call of "Well, everybody else is buying it". Let them.