Buying into a position after it has already “started to run” is known as chasing and experienced investors refer derisively to those who do it as “chasers.” It is easy to become a chaser in an emotional moment. When a stock is rising in value very quickly, Wall Street watchers all over the world light up social media and those double-digit green percentages are flashing on your trade screen. Traders long in that stock are getting rich fast! You want in on that fast money. You hastily purchase a bunch of shares. Then the price starts to plummet. It goes back to near where it started, and you are down about half what you put in in a few minutes.
Some of us just ignore the sage advice of Mr. Cramer and other trading gurus and learn our lessons the hard way. I’ve chased a stock, buying in a few seconds before it turned around. The situation was made worse by the fact it was a “pump and dump” penny stock, so the percentage gains and losses were staggering. I freely admit I was stupid that day, but at least I am a disciplined kind of stupid and my stake in that role of the roulette wheel was relatively small. It was a powerful lesson that I will never forget: Never chase a stock.
A related phenomenon is buying a position all at once. Many investing experts suggest that you buy a position slowly over time. This will also help keep your stake low when you inevitably decide to buy into a stock that has already had a good run and is ready to nosedive.
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