Two Kinds Of Traders
There are two kinds of stock traders. One kind nearly always makes a
profit, and the other wins sometimes and loses other times, but
eventually loses all if he does not change his methods. The first kind
buys stocks on liberal margin or outright and is not worried when the
market goes against him, because he has good reasons for believing that
prices eventually will go up. If he does have to take a loss
is likely to be small compared with his profits. The
second kind wants to make a big profit quickly, and he buys stocks that
he thinks are going to make big gains in the near future, but his
selections are not based upon good judgment.
We might designate these two traders as the careful trader and the
The careful trader tries to get good advice on the markets and the
values of stocks. If the advice appears to him to be conservative, he is
guided by it; but if the reckless trader gets advice on stocks, he is
not guided by it if it is of a conservative nature. If he does take
advice, it is likely to be from one of those unreliable market tipsters
who is very emphatic in his statements about what the market is going to
do. The reckless trader lets his greed and desire for large and quick
profits influence his judgment.
Once in a while one of these reckless traders realizes that he has made
a great mistake, and he wants to change his attitude. Usually he is
holding several stocks that show a big loss and he does not know what to
do with them. He reasons that they are selling so low now they surely
will sell higher some time. Perhaps his reasoning is good and perhaps it
is not. The stocks may have no chance of going up for a very long time,
if at all, but even though they have a good chance to go up later, it is
better for him to sell them now if he can put the money derived from the
sale into something else that has a better chance to make a profit.
Our advice is never to hesitate to sell and take a loss if you can put
the proceeds from the sale into something better rather than leave it in
the stock in which it is now. It is not so much a question whether or
not the stock you are holding will go up, as it is whether or not you
would buy that particular stock if you were just coming into the market
to make a purchase. Of course there is a loss of commissions when you
sell a stock and buy something else, and for that reason we sometimes
recommend holding a stock when we would not recommend buying it.
If you have been a reckless trader in the past, the only thing for you
to do is to change your methods and try to become a careful trader. It
is much better to go to the extreme in carefulness and be satisfied with
very small profits than to take great risks.