The first Little Pig built his house using straws and it was a nice house. But when the bad wolf came and blew it hard and the straw house collapsed and the first little pig ran away. When we first buy a particular stock, it is no difference from what the first little pig did - building his house with straw. The particular stock that we have just bought is in the weakest position and facing the highest risk. It is not sitting on any past realized profit except facing potential realized loss or already nursing the sorrow of paper losses.
The second Little Pig built his house using woods and it was a better and stronger house. But when the bad wolf came and blew it hard and the wolf blew very hard to blow the house down. When we buy back that particular stock again on pull back or correction, it is no difference from what the second little pig did - building his house with wood. Now, this particular stock that we have just bought is in a stronger position and facing lower risk as it is now sitting on some realized profit and it will take more downside for us to sit on any Nett unrealized losses.
The third Little Pig built his house using bricks and it was a very strong house. But when the bad wolf came and blew it hard, harder and hardest but the brick house remained steady. After a number of successful stock transactions, we may have acquired a new pillow stock and we will never lose our capital anymore. It is a strong and steady house for all the three little pigs to live happily ever after.
So are you the third Little Pig?
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