Equity Gyan : Investing = Waiting

Good article for reading...

"The waiting is the hardest part,
Every day you get one more yard,
You take it on faith,
you take it to the heart
The waiting is the hardest part..."

"The Waiting"

You discovered an intriguing company and you took your time studying and thinking about it before taking any action. You crunched some numbers, compared it with its competitors, evaluated its financial health, growth prospects, and valuation, and liked what you saw. Finally, you took some of your hard-earned dollars and plunked them into a handful of shares in the company. Let's call it Dodgeball Supply Co. (ticker: WHAPP).

Hours go by You're suddenly stricken with self-doubt. You consider selling immediately.

Wait!

Have faith in yourself. If you did your due diligence, and studied the company well, then you should have had some solid reasons for buying the shares. Don't ignore the holding completely from now on, but don't obsess over it, either. Give the seedling time to grow. Perhaps develop some other interests!

One day, you read that a company insider, perhaps even the CEO, is selling some shares of Dodgeball Supply. Uh-oh! You panic. You clutch your heart. You grab your phone and prepare to call your broker.

Wait!

That's not a good reason to sell. Remember that there could be many reasons why the insider sold his shares. These days many corporate bigwigs receive much of their compensation in the form of stock (or stock options). When that's the case, they'll have to sell shares now and then in order to generate some cash. Insider sales are not necessarily a corporate death knell. Of course, if you see many insiders selling a big chunk of their shares, all around the same time, then that does look kinda bad. (Insider buying, meanwhile, is generally a green flag of some sort. Bigwigs will rarely buy shares if they think their company is about to burst into flames.)


Wait!

Relax. Take a deep breath. Remember that it hasn't been too long since you studied up on the company, and not much has changed for it, except the new possibility of even faster growth. You had expected the stock to double for you in a number of years, so the fact that it has jumped up a bit shouldn't stress you out. Should you buy more shares? Probably not. Let's say that you invested 10% of your available funds in WHAPP. If so, then you probably don't want to buy even more, as you'll likely end up overweighted in one company.

Months go byDodgeball Supply announces that its highly anticipated newest offering, the Z-2000 ball, featuring the latest in rubber technology, will debut a month later than expected. At fault is a late shipment of supplies, due to a fire at a supplier's plant. You break out in a sweat. You feel a stroke coming on. You rush to your computer, to get a quick stock quote. It's down half a point. You think maybe you should sell.

Wait!

Think about the issue at hand for a minute. Will this one-month delay really change the future of the company? Is it an insurmountable problem? Does it reflect serious problems at the company? No, no, and no. Some news stories should make you stop and rethink whether you want to keep holding a stock. But this isn't one of them. Patience, Fool. Time for a new diversion, perhaps?

Years go by If you've made it to a year and beyond, and you're still holding those shares in a company you still believe in, then congratulations!

Here are some final thoughts:

You do need to keep up with Dodgeball Supply and all your other holdings. But try to be proactive, rather than reactive. Read the quarterly earnings reports and follow each company's health and progress as revealed in financial statements. Pore over the annual reports. Read discussion board posts about the company and follow it in the news. The more you know, the fewer surprises you'll encounter.

Don't let other attractive companies turn your head, unless they're significantly more attractive than what you own. Trading frequently in and out of companies will generate commission fees and -- if you're lucky enough to make a profit -- taxable short-term capital gains.

Do consider selling -- for the right reasons. These include: (a) You find a much more compelling investment, (b) You need the money now, (c) You will need the money within a few years, (d) You no longer believe in the company's strength and growth prospects, (e) You realize you don't know enough about the company, (f) You think the holding is rather overvalued, and (g) The reasons you bought it are no longer valid.

Don't let investing take over your life. To do it well usually does take some time, but aim for a balanced life of work, profit, fun, family, friends, etc. Overdose on investing now and you might burn out before you develop a sustainable and profitable approach and routine.