i searched the forum for this story but could not find it. sorry if its been duplicated, as it has happened once before.
source - internet
A former colleague and a friend sent me the following story illustrating how the stockmarkets work. It is both funny and truthful.
And I think lots of people who get stuck with bad stocks because they bought it on a rumour will find the following quite educative. So here goes.
It was autumn, and the Red Indians on the remote reservation asked their new chief if the winter was going to be cold or mild. Since he was a Red Indian chief in a modern society, he had never been taught the old secrets, and when he looked at the sky, he couldn't tell what the weather was going to be.
Nevertheless, to be on the safe side, he replied to his tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared.But also being a practical leader, after several days he got an idea.
He went to the phone booth, called the National Weather Service and asked "Is the coming winter going to be cold?" "It looks like this winter is going to be quite cold indeed," the meteorologist at the weather service responded.
So the chief went back to his people and told them to collect even more wood in order to be prepared. A week later, he called the National Weather Service again. "Is it going to be a very cold winter?"
"Yes," the man at National Weather Service again replied. "It's definitely going to be a very cold winter."
The chief again went back to his people and ordered them to collect every scrap of wood they could find. Two weeks later, he called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?"
"Absolutely," the man replied. "It's going to be one of the coldest winters ever." "How can you be so sure?" the chief asked. The weatherman replied, "The Red Indians are collecting wood like crazy."
The above tale demonstrates how cause and effect get mixed up in the stock markets. Those who trust rumours or 'tips' and see evidence of their correctness in the stock prices moving up or down may be caught in the same game. Investors, the medium- and long-term variety, must look at the fundamentals and past price behaviour before making any investments.
Many a times while the choice of stocks may be right, the timing of purchase goes wrong. Thus, investors end up buying stocks after the prices have moved up sharply and they get tired or depressed as the stock refuses to climb in the short term or declines. And they end up exiting the counter just as the valuation starts moving up again.
Of course, if you are a day trader the strategy is understandably reversed. That is you move with the crowd and exit at the first sign of stagnation in prices. In short, investors must decide whether they are buying a stock for trading or for the long term. Their buying and selling strategies for the two should be totally different.