Once the fear fades, we’re going after beaten down bargains.
Uber is down about 50%. Facebook is down 40%. Amazon.com is down 36%. Disney is down 32%. Tesla is down 35%. Alphabet is down 22%. Other big names are down even more.
However, we wouldn’t race to buy beaten down stocks just yet.
Just because futures are up about 300 points this morning means nothing. We’ve seen it before, and got crushed. In fact, as we noted on April 27, “If you believe the bottom is in, I have a bridge to sell you.” That was right before the Dow fell from 33,450 to 32,245.
What investors need to do is wait for confirmation of trend change here. Just because futures are pointing to a higher open means nothing. Wait to see if any new rally is sustainable first. If not, you could get burned by a fake move, as some traders have learned the hard way.
At the same time, we are encouraged by a sign fear may soon subside.
Never invest more than you can afford to lose.
A friend of mine once made 325% in a week’s time on a trade.
Then he risked it all on the very next trade that cost him 90% of that 325% winning, telling me, “Bro, it’s a sure thing. Jump in, too.”
For one, no stock, no ETF, no option is ever a sure thing. It does not exist. Two, before you invest in a stock, know how much you can afford to lose on that trade. Set parameters for every trade. The last thing you want to do is risk the house, and then lose the house.
According to The Balance:
“There’s a natural human tendency to want to overreach, put in more money than you can afford, and go for a huge payout. This trait tends to become magnified in the face of losses. This is referred to as the “sunk cost fallacy”—the belief that you’ve invested too much to walk away. Rather than selling in the face of losses, someone might hold on to a stock that’s underperforming or, worse, buy more.”
Before investing, find your number.
If you can’t afford to lose $20,000 on a trade, why are you risking that much?
Insider Buying: Uber Technologies (UBER)
Keep an eye on Uber Technologies (UBER), as we note at TipsforInvesting.com.
Oversold at support dating back to April 2020, the stock may be overdue for a bounce. Helping, CEO Dara Khosrowshahi just bought 200,000 shares of the stock between $26.64 and $26.775. All after telling employees that the company plans to cut costs and “react accordingly” to the unexpected change in investor sentiment.