Advice On Stock Trading / Investing Strategy ?
Im a finance major and have some experience in the stock market, read a lot and still am. Now im in the process of formulating / updating my strategy. I went in last week and did fairly well, 8% on my capital when the market was down 2. 5 % by end of the week. I diversified (about a stock in every industry) and had an exit strategy in place mainly for stop loss. I lost on a couple of buys but made up with the rest.
Now i need some Professional input on part of my strategy . Im thinking that whenever i exit a stock (mainly small caps) with a profit, invest “my profit” in bigger solid companies that are down right now . Ex. walmart, msft, intl, sbux, McDonald’s etc. And leave those in my portfolio and hopefully let my profit run and consider them a long term investment. I want to keep reinvesting my original capital and may be add in more money to my capital whenever i can. Is that a good idea? i have another income so i don’t need my profits. So would this hopefully increase my capital in the long run given that these large companies i mentioned are undervalued right now?
Sorry for the long description, any input is highly appreciated. I need a Professional traders / investors opinion
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I like Dan’s answer.
I don’t think I’d call what you’re doing a “stradegy”. You simply have two time horizons & funding one with another. You have to use appropriate “stradegies” to pick stocks in both cases.
All you’re stating is how you’ll fund the long term investments. . . . not a big plan. . . just a reasonable idea.
I trade “professionally”. . . . but you don’t need a “professional” to answer this type of question.
i don’t like your idea. assuming you can make money consistantly in small caps you should put your profits back into that arena. it is always harder being good at two things than at one thing.
Here’s My Advice:
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Before You Start Reading Stock Charts Upside Down — to determine which are accumulating or distributing, and when to buy or sell them – there is the issue of finding solid companies to invest in.
You may have heart about “Fundamental Analysis”, which just like technical analysis could be made so overwhelming that you rather give up than start taking investing seriously…Some investment managers and writers about investing would argue that it is essential to learn to read the balance sheets and income statement of companies; to assess the quality of management; to call or meet with management, to correctly estimate the intrinsic value so as to know when a stock is undervalued…Tons of books on fundamental analysis could put you back into study mode for years.
Fortunately, a lot of that has become unnecessary since the publication of “Investors Business Daily”. In the newspaper that William O’Neil pioneered you can find a lot of analytical data (notice I wrote “data”, not “intelligence”) that narrows down the number of companies you should investigate. In fact, the IBD 100 list, published every Monday in IBD, reduces some 10,000 companies listed on the exchanges down to one hundred worth your time.
How do you then pick out of these 100 a watch list of 10 to 12 stocks from which you select two to four to buy when your chart reading tells you it is time to buy them? I’ll spell out my approach, which does not entirely follow what Mr. O’Neil wrote in his books or tells in his workshops, but as any guru in the field he has a tendency to make things more complicated than necessary. Why else would so few women attend his workshops?
Let’s start with Earnings Per Share (EPS). IBD provides a ranking of companies based on EPS. If a company does not rank in the top five or ten percentile (meaning a score or 90 or higher), it should not belong in your watch list. The EPS rankings of all stocks can be found daily in IBD. Next, look at relative strength (RS) and group RS ranking. The RS should be bigger than 80 and increasing and the group RS ranking should be at least 85.
Next look at sales growth and earnings growth per quarter. Without sales it is impossible for a company to make earnings; so both sales and earnings growth better be growing more than 25% quarter to quarter. Earnings growth over time and return on equity should at least be 20% or higher. Management should still have a significant stake in ownership (20% or more), and an increasing number of institutional shareholders is also something to look out for.
Finally, my personal preference goes to companies that produce a product or service you understand. As I am not a chemist, biologist, pharmacist, material specialist. . . . I shy away from companies that produce services or products that I do not understand. This does not mean I stay away from all technology. For example, I understand what a GPS system is, how useful it is for navigation and many other applications, so Garmin (GRMN) is a stock that fits in my criteria.
If you apply these simple criteria to the IBD 100 list you will quickly reduce the list down to a watch list of a dozen or so. Out of these the ones the two or three to buy are the ones that are accumuatling and come within 5% or less of their buy point, which you find through your chart reading, When there is a spike in volume and a significant price increase you buy the stock right at its buy point.
In spite of all the efforts by Bill O’Neil and company, not many people following this approach. Lots of investors who are just starting out take the IBD 100 list, pick the top ten stocks and invest in several stocks from that shortlist. This is the worst possible use of IBD 100. Remember, IBD provides “data”, that only you can transform into intelligence for your best advantage.
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To Your Investments Success,
A Professional Stocks and Forex Market Trader
Dan A.