Editor’s note: This article was first published in July 2012, and was written on 31 July 2012. Solaria’s rise of up to 40% and 12% fall the next day, the author’s position in Gamesa and Jesús Pérez’s role as CEO of Financial Red and Bolsa.com refer to then. Gamesa later merged with Siemens’ wind business and was delisted in 2023.
Here are two videos in which people we can consider stock market investing experts, given how long they’ve been trading, explain the mistakes they’ve made and learned from over the years. They all speak with humility and knowledge, and personally I identify with most of them.
However, there are a few points I don’t entirely agree with, so watch the videos first and we’ll discuss them below.
The first video was produced by Estrategias de Inversión, and in it we can see the tips and mistakes of Miguel Cedillo, José Luis Cava and others.
Watch: Trading mistakes and tips from professional traders (Estrategias de Inversión, in Spanish)
As you can see, these traders’ most striking mistakes are mainly in futures and currencies. The currency market has never appealed to me, and I find futures too risky, because while in the stock market you can lose part of your capital, in futures you can lose absolutely everything.
We’ll pick out three of the mistakes:
- Not accepting losses. If a stock doesn’t move the way we expected and your intention was to make money in the short term, get rid of it. Take a 1 or 2 percent loss before you lose more than 5%.
- Using stop-losses. Some of you already know I was never a fan of stop-losses. Of course, I used to invest for the long term and the market wasn’t so volatile. In this new phase, with so much news still to come, placing a stop-loss isn’t optional, it must be mandatory, and if you’re trading intraday it should be very tight (1–2%, no more).
- Going against the market. This is probably the most common mistake we make. I’ve done it recently with my “beloved” Gamesa. I like that company, I know it’s worth much more and that it will eventually take off, but the market doesn’t like it for now, so every time I buy in, I soon have to get out. Mind you, I usually keep it in my portfolio, and if I did the maths, I think that in the end the company has given me capital gains as well as headaches.
The next video is a talk by Jesús Pérez, CEO of Financial Red and Bolsa.com. His 10 rules for traders are well worth hearing. I agree with practically all of them, except for a few small details. Watch the video.
Watch: Jesús Pérez’s 10 rules for traders (talk, in Spanish)
I disagree on two points:
- The information we all receive doesn’t give us an edge over others. It’s true that information doesn’t give us an edge, but being among the first to use it gives us a big one. Let me explain. “Solaria announces it is about to close a major deal.” That information was sent to the CNMV (Spain’s securities regulator) yesterday and then spread across social media. Solaria rose as much as 40%. The first to invest in Solaria after the news were able to make that full 40%, or let’s say 30% or 25%. The last ones got caught at the top, since Solaria lost 12% today. Information is power, and the faster you use it, the more power you’ll have. Remember when you were a child: “Last one there’s a rotten egg.”
- Rumours. It’s true that lots of rumours appear. If I’ve learned anything about stock market rumours, it’s that they tend to be true in 80% of cases, and in the other 20%, lots of investors will act as if the rumour were true. A simple rumour makes shares rise or fall. That’s a fact.
Otherwise, I completely agree with Jesús Pérez’s talk. I’d never had the pleasure of hearing him speak before, and it was truly enjoyable and entertaining.
Featured image: Mrb-Wind, CC BY-SA 4.0, via Wikimedia Commons.
