"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell. If it don't go up, don't buy it." -- Will Rogers
"Optimism means expecting the best, but confidence means knowing how to handle the worst. Never make a move if you are merely optimistic." -- The Zurich Axioms
Both fear and greed (Money Skill #29) can get in the way of rational buying. You fear that if you don't get into something immediately, you'll lose out on a "once-in-a-lifetme!" opportunity. Fortunately, there's never a scarcity of opportunities, so missing out on any particular opportunity isn't the end of the world. You can also put too much money into something because of greed. (I just saw on TV someone (of modest means) featured who borrowed about $50,000 so he could put something like $56,000 into AT&T's IPO (initial public offering). I wouldn't even consider such a risk. If I had $50,000 to "play" with, I would put no more than $10,000 into such an IPO. Martha Stewart's IPO went public a few months ago at around $37 a share. Last I heard, it was down to about $14. If I were playing the "IPO game," I would have a bankroll for this purpose and put no more than 20% of this bankroll into any one IPO.)
It's worth spending a few hours in research before committing any substantial amount of money to anything.
A key consideration for me, before buying, is how long I expect it will take to "close the risk window." I want to get to the point where I can sell part of my holdings to recover my original capital, but have sufficient holdings left to continue significant earnings. As soon as I've recovered my capital, I've achieved a "can't lose" position -- I've closed the risk window. Generally, I don't like any risk window of more than three months. So, if it looks to me like I won't be able to double my money in three months, take out my original capital, and continue significant earnings, I don't buy into a money-making program.
When I sit down at a blackjack table my first step is to test (usually playing the table minimum) if I have a significant statistical advantage or can fairly quickly get one. If getting my advantage seems unlikely I move to another table until I find one where I have the advantage. (Counting cards and a few other techniques give me an overall advantage, but not an advantage at every table. Don't ask me for details, I ain't tellin' nobody!)
Similarly, when I join a money program or buy a stock, I want to know that I have an advantage -- a high probability of making money -- and I want to know why I have this advantage. And I want to know how big my advantage is. Do I have a 60% probability of making money, or is it a 90% probability?
When I go to a casino with $1,000, or put $5,000 into a money-making program or stock, I also want to be clear about the potential downside. I could lose all the money. I'm psychologically prepared for this. I'm also monetarily prepared in that the amount is a fraction of my bankroll and losing it would be no more than a minor setback.
Another key consideration, before buying, is how much time you're likely to spend on achieving your anticipated earnings -- see Money Skill #43.
