Look at the Whole Picture
You've got to look at the "whole picture" of a share before stepping in to buy it.
This is particularly relevant if you rely on chart "signals" to buy a stock, especially if it's a smaller company.
A chartist friend called me up the other day and he was rather excited.
"I've just bought Highbury House!" he said. "I've been watching it for weeks waiting for it to get to 12p and today's the day."
He then went on to explain why his chart showed it was a cracking buy.
Something to do with a double bottom or a magic triangle, or some such.
"I'll have a look at it," I said.
Years of experience often help when deciding whether to buy a share or not.
And it's often the smallest things that give out ominous warning signals.
I immediately didn't like the look of one fact. The spread on the shares was 10.5p-11.5p.
Yet those buying the shares were being given 11p. Curious, I thought. The Market Makers seemed very happy to part with stock at good prices.
What's worse was there was an awful lot of big selling going on. When you see someone selling 140,000 shares the day before results, you do wonder.
Then I found out by looking at the last statement from the company that its results had been delayed - and that's often a sign all is not well.
In fact I discovered the results were due out the next day!
It was now 4pm. With the markets due to shut in half an hour I reckoned things did not look good for my friend's buy.
I called him back. "I'd get out," I said. "Heavy selling, generous buying prices, it just doesn't feel right."
He decided to hold on - fair enough!
The next day dawned and there was the profits warning. Shares slumped to 8.5p.
A day later and my friend called me. "I took my losses," he said.
"Oh no!" I said. "I've just bought some!"
There was no way he should have taken his losses there and then. You've always got to let the market settle before selling in a panic.
Again, he wasn't looking at the picture - a new picture- being painted.
I'd bought some at just over 9p because I'd just seen an announcement that the directors had all waded into the market buying shares. It was certainly a short-term vote of confidence in the company.
All those buys would be in the press the next day and probably prompt further buys. Also the company now looked undervalued even given the profits warning. And there was no way Highbury was likely to go bust short-term.
Over the next few days the shares rose back up to 11p. Then 12p!
So I reiterate - look at the whole picture before you buy or sell a share.
Are you selling or buying in a panic or are you unemotionally looking at the facts before you?
And have you checked everything - such as Market Maker prices, news stories, etc. All the small things add up to the big picture.
I'm now (October 8th) up more than 30% on my Highbury buy, or nearly £3,000 profit and the shares have hit 12.5p.
The question is when do I sell? Well, I'm off to take a look at the whole picture right now!
It's been another terrific week on the markets and the money is pouring in for me and I suspect you too!
When's it time to take profit? Well, not for right now, I think. The trend as I write looks strong and the markets don't want to go down.
Burren Energy continues to be a cracking winner and I've doubled my money in just a few weeks.
Radstone Technology is sprinting higher and this underrated company has a way to go.
And my good old favourite Dignity continues to climb a little at a time whatever the market conditions.
It's good to see so many people making money and the ADVFN Bulletin Boards are alive with the sounds of profit!
Let's hope we all manage to take those profits at the right time by continuing to look at the whole picture!