7 Deadly Stock Sins

I was thinking about the seven deadly sins the other day. I suddenly realised that these sins applied quite neatly to share trading.

So here's my rundown of the sins, and how to spot when you are sinning.

PRIDE

Pride is really deadly. You simply can't afford to have this deadly sin if you're going to trade.

What's so bad about pride? Pride is going to stop you from selling a share that's going down. You're a proud guy - when you bought at 300, you were certain the share was a good one. You set a stop loss at 270 and it's now 260. Oh, sod the stop loss! I'm right! It'll go back up.

Pride will carry on stopping you from selling the share now. In fact, pride may even make you buy more at lower prices because you were right the first time, and those that are selling the share are complete idiots!

ENVY

A horrible sin. This usually comes from reading about other people bragging on the bulletin boards about their successes. Especially bad when you read about someone buying a share at 2p and getting out at 12p.

What happens is that the envy you feel from reading about this kind of success drives you to trade far too much and buy far too risky shares because you, too, want to be a success.

So don't be envious of other people's successes. For a start, they're probably exaggerating. Work on an exaggeration factor of about 60%.

Be your own man (or woman). Stay envy and emotion-free when trading.

SLOTH

Oh, it's sooo easy to be slothful - to slob around and don't do any research. Just buy any old share you see hyped on the bulletin boards without even bothering to look at any fundamentals. Perhaps just a quick look at the charts to justify to yourself that you've done a bit of research.

Stop the sloth! Research shares properly. Concentrate on what you're doing - remember it's your money you're going to be losing. Think carefully and look at a share from as many angles as you can. Read the company statements, reports, look at the charts properly. Cut the sloth, and you may start to make money.

GREED

Ah, greed. One of the main failings of investors. And believe me, it is very easy to fall into greedy ways.

This usually happens when you've had a good run - a few of your shares have gone up and you feel like you're the master of your domain, king of the hill, top of the heap (is that a song?)

Greed now makes you overreach yourself. You suddenly get greedy and start buying loads of shares with money you haven't got because you want to make more and more money. But, what usually happens is overtrading suddenly leads to too many positions being open, with the inevitable consequence of profits turning into losses. Then, of course, pride sets in and you won't cut your losses (See Pride).

GLUTTONY

A desire to consume more than one requires. Put another way, this is trading with money you don't have. This is easy to do these days with CFDs and T plus trading.

But if you play with CFDs and T trades, this leads to gluttony, which can spiral out of control. You may find that you'll buy more and more CFDs with little thought on whether you can really afford to take out so many positions without putting up the money. If you don't have the money, don't trade using too much margin. Keep the gluttony at bay.

WRATH

I think this is the lesser of the deadly sins. After all, we all get angry about our trades from time to time.

However, there is a danger with this deadly sin. It's an emotion, and emotion is to be avoided at all costs when dealing in shares.

Wrath is OK unless we let it get the better of us. The best example is getting angry because a share you were een on is going down. The problem with feeling angry is you then feel the share 'owes you' and you end up buying more to try and break even. Believe me, the chances are you'll feel even more wrathful when this continues on a downward trend.

So if you feel wrathful, take a break from the screen, or go meditate.

LUST

I'm really sorry, girls but I'm already taken.

Luckily none of these sins have affected me so far this year - in fact my portfolio has leapt higher so far in 2005!

In particular, my five shares that I wrote about at the beginning of this year, have nearly all leapt higher.

The stars, for me, for 2005 are: Isotron, Burren Energy, RPC, Carrs Milling, Dart, Northern Recruitment, Premier Foods and Harvey Nash.

While, at some point, I'll be taking profits I think they all have further to run.

Oh no, that's not greed setting in... is it???