The Patron - Up Or Down?

"The Patron" is a new series by Chamber of Merchants that follows a beginner investor trying to turn $10,000 in to $20,000 in less than a year. Click here to read The Patron's first post.

The close of the ASX yesterday marked the completion of my first week being active in the world of investing and trading.

If you are familiar with my previous post and introduction, then you will know I have little to no experience with trading stocks and have decided to take matters into my own hands by investing $9,999 into the ASX.

My hope is to learn how to make better returns on my capital.

Chart

Last week I felt a sense of achievement when I looked at my profit and loss and saw a 2% gain after 2 days. I remember thinking how easy this was and how wonderful it would be to tell my wife the good news and finally prove (I mean show) the point that investing is nothing like gambling.

Unfortunately last week Friday saw one of the stocks in my portfolio (Excelsior Gold Ltd (AX:EXG)) drop by over 36%

I had put roughly $2000 into EXG a couple days before they announced news which was perceived negatively by the market and so the share price tanked from 0.041 down to 0.031 which is where I sold out and took my first loss.

“We are not our thoughts…”

This was the day I wrote my first post and I mentioned the emotions I experienced and lessons I learnt:

1) The stock market is not a place to place money in while sitting back and relaxing!
2) One’s mind can become its own enemy, by imagining the worst possible outcome…repeatedly.
3) For me the stock market is partly about learning to invest, and partly learning to overcome the emotions I experience when under stress
4) The emotions never stop, the thoughts are always there.
5) We are not our thoughts…our response to the thoughts & emotions is what defines us and separates good investors from bad investors.

Having said all this, I opened my profit and loss on Monday and noticed all but one share had dropped in value. This meant I had now gone from $10,200 after two days, all the way down to almost $9,000 after four days.

Now I dare not mention a word to my lovely wife!

Previously I was confident and almost eager to boast about the easy gains, yet now I dare not breath a word of our investment and how it moved 10% negatively within a week. Once my wife and I agreed on a trial period of 3 months, I promised to show a return of at least 7% (I honestly believe this will happen within 2-4weeks) The second step was discussing the options I had and also the emotions I would probably experience during my first week. The third step was taking five companies and spreading evenly between them all. The five companies I chose were Millennium (AX:MOY), Blackham Resources Ltd (AX:BLK), Silver Mines Ltd (AX:SVL), Excelsior Gold Ltd (AX:EXG) and Ramelius Resources Ltd (AX:RMS). I became familiar with the process of buying stocks as I put roughly $2000 into each. The fourth step was sitting back and watching the cash roll in on what I believed to be a passive form of income. I felt great after two days as I made about 2.5%.

Previously I would have thought about cutting losses and exiting the market to seek safer alternative forms of investing, but I made a commitment to this for 3 months as a trial period, and I have guidance from other investors who experienced the same scenarios.

The age old battle will rage on within my own mind, while those investors around me bring peace to the storm through the words they speak. If we know the reasons for stock price movements, then it is easier to think logically and not emotionally.
(Education really is power)

Today the numbers are different.

My mindset is now positive and if you’ve been watching Gold, then you would have noticed the price increase.

We do not bow to our emotions as traders, otherwise we would cave within a week. My loss of 10% in the first week was someone else’s gain!

It is possible to make excellent return on your investment through the stock market…It just happened to be someone else last week, and hopefully this is my week!

Stewart | the Patron

Commentary from the Merchant:

I really appreciate the level of self-reflection here. Stocks and the market are volatile: a loss today is a break-even tomorrow depending on circumstances. One thing I want to point out is that a Merchant’s mindset is not determined by price. There’s a comment above which I would caution against:

“My mindset is now positive and if you’ve been watching Gold,then you would have noticed the price increase.”

Is the mindset positive now because of the price of Gold having a slight bounce?

If it is, then I can guarantee that your mindset will oscillate between positive and negative on a daily basis. That is not a sustainable approach. Your mindset should be positive before you enter the transaction and throughout. You also purchased your precious metal mining shares at an oversold level.

It may be difficult, but try not to get terrified by dips or over-excited by gains in price. If you celebrate every positive move, then you’re bound to have a funeral every time the price dips again.

Finally, I’m impressed by the honesty that there were times that your thoughts urged you to get out in the past 7 days. Essentially we want to feel better, and the only way our fight or flight brains know how to do that is to exit the situation by selling.

Well done on sticking through it.

| the Merchant