Asking why.
As an investor your biggest asset is time and experience. You'll use your time to do research and analysis and you'll use you're experience to keep you level headed.
Asking why, in general, is a good way of understanding why certain things happen, both in investing and in life. So here's a tip for you, if a stock has made certain moves, sudden price increase or decrease, do the research, read up on why this happened. As soon as you as an investor start to realise how certain things affect the price of the stock, it will allow you to increase your profitability in the sense of making a decision on whether to buy or sell before the price changes.
Let me give you an example. I invested into a company called Exxaro Resources Limited, listed on the JSE, they are a thermal coal company with a excelent dividend of 23%.
Pre Price decrease
After having invested in it for a while, the stock had substantianl growth, almost 18% for the year, granted I was mainly buying the stock for the dividends. After the dividends were declared, the stock price took a massive dive, wiping out 15% of my 18% growth on the stock. After a bit of research I found two big details about the stock.
Firstly:
The majority of the holders of the stock are investment firms and hedge funds and their main reason for buying the stock was for the sake of the dividends, and once the dividends got declare, the majority of them sold their stocks. Thus allowing them to earn dividends and exit their positions at the same time.
Secondly:
The stock under performed, the EPS(earnings per share) was lower than expected, thus resulting in a negative outcome in the stock price. Although the EPS wasn't much lower than projected, the stock price still took a hit.
Post Price decrease
Having invested into this company with one of my good friends, they urged me to sell, I originally didn't want to sell, because I felt the stock was still very good and the price would increase a bit, after which I would have sold. Regardless doubt crept in and I eventually sold it for a small profit. Two weeks later, after the market settled and the hedge funds all excited, the stock price climbed roughly 10% from the dive meaning if I had just waited a week I would have made a good profit. And even if I reinvested the dividend I would have made an even bigger profit.
Lesson learnt
I've realised now that with due time there will be results, it's key to do your research and stick to your gut. If I sold it a little earlier after the dividends were declared the profit would have been really good. Even if I didn't sell Holding on a little longer would have also made me a good profit.