There are two major components to stock market success: refining a stock-screening strategy, and taming emotions.
If you’re still using the same stock-picking criteria that you used two, five, twenty years ago, your portfolio performance is not improving.
And if you’re allowing fear and greed to dictate your buy and sell decisions, you’re also not enjoying success.
I’ve got an excellent stock-screening strategy, which I’ve refined over 26 years of investing, and I’m not going to share it with you. So you can either subscribe to my website for outperforming stock recommendations, or continue on your merry way.
But I WILL tell you a few basic no-no’s which hamper most investors’ portfolio performance:
Most investors are afraid to buy “high-priced stocks”.
The price of a stock does not determine its valuation. If you automatically omit all stocks over a certain price from your stock selection process, you are making an arbitrary, illogical decision. A $250 stock could be overvalued OR undervalued, depending on balance sheet data. Professional investors know this, and that’s why they might hold Google (GOOG), but avoid Apple Inc. (AAPL).
All balance sheets and charts being equal, a $250 stock will have the same percentage increase as a $25 stock. No matter how many shares you own — ten or 2000 — your principal balance will go up the same dollar amount with each stock.
Stock valuation is made via assessing balance sheet data and price earnings ratios. Concern over share price is ill-placed. Investors would fare better by learning to assess earnings, debt, PE, and other numerical data.
Most investors are afraid to buy stocks which are reaching new highs.
Technical analysis is the study of stock charts and daily trading data. We can all agree that a stock with a bullish chart is more likely to go up than a stock with a bearish chart. And there is no chart more bullish than that belonging to a stock which is reaching new highs.
Learn to read stock charts. Start with common patterns such as “cup and handle formations” and “double bounces” and “trading ranges”, and continue learning from there.
Most investors are afraid to use stop-loss orders.
My portfolios have two goals: maximizing growth and minimizing risk. I minimize risk by screening stocks for healthy balance sheet data, and by using stop-loss orders. If a stock starts falling, it sells, and I don’t have to be constantly staring at a computer screen.
I am almost always fully-invested. If one of my stocks sells, I ignore it from that point onward, and use the cash to buy another stock with a more bullish chart. If two or more of my stocks sell, I assume we’re having a market correction. I hold onto the cash for a couple of days or weeks — depending on the S&P chart — and then “buy low”. I LOVE HAVING CASH TO BUY LOW DURING MARKET CORRECTIONS.
Most investors groan and curse their bad luck when market corrections come along. But for investors who use stop-loss orders, a market correction represents an opportunity for a shopping spree.
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The information contained on this website is provided for informational purposes only and contains no investment advice or recommendations to buy or sell any specific securities. This is not an offer or solicitation for any particular trading strategy, or confirmation of any transaction. Statements made on the website are based on the authors’ opinions and based on information available at the time this page was published. The creators are not liable for any errors, omissions or misstatements. Any performance data quoted represents past performance and past performance is not a guarantee of future results. Investments always have a degree of risk, including the potential risk of the loss of the investor’s entire principal. There is no guarantee against any loss.
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