How should your readers go about choosing the stocks to invest in from the newsletter? (April 15, 2002)
Our method of investing and making money in the market is different from many places. Most brokers or managers want you to buy into a stock and sit in it for a long time. You buy it at a low, 'value' price, and sit on it until the rest of the market decides to buy it as well. Could be a long wait. We love to be able to buy and hold long-term as well; in the 1990's that was a great way to invest with CSCO, DELL, INTC, and others on a rampage for years. Still, we don't just buy because a stock is 'cheap,' and then hope it rises. We buy a stock when it looks ready to make an important move (short term or longer term) so we can get the most out of the move. Sometimes they never make the move. They break down before that. We market those off and look at them again later. The key is making the move over an important resistance point that can free it of sellers and launch a good run. That may be a shorter term move or a longer term move. We have targets in mind, but we let the stock show us if it is going to continue to run for us.
Given the end of that bull run and the subsequent bear market, however, the recovery has been very choppy. Some stocks have done very well for us over the long run (WLP, LLL, ACS, BBBY) and are still solid, while other longer term winners folded up (GNSS, NVDA). Most stocks are still trying to work out of the bear market, and the action remains choppy. We can make 15%, 20%, 30% on many stocks over a fairly short time period (days to weeks), and then see the stock turn over and lose all the gain and then turn into a loss. The market just does not support a lot of long term buy and holds right now.
That is not necessarily the end of investing. What we have always done, no matter what the market conditions, is get a handful of investments that we really like for each session or each week. We rank them in preference. Then we let them make the move. In other words, I pick a group that looks promising. Then I had buy points for them. I would only buy if they hit the buy point. When I worked full-time at another job I would call my brokers in the morning and let them know what I was looking at. Then they would call me (sometimes not) when the move was made. I also started putting in buy orders above the breakout point and letting the stock hit it while I was away. Lots of times I would not even get in on the first day of the move; I would come home and see the stock had started the move and then get my order in for the next session either beforehand or after the open with a call to the broker. Then I would set my stop point and a target I already had in mind.
Again, the key was focusing on stocks that I liked (good sector, leader, good pattern, type of play) and letting them make the move. Sometimes I would run out of money for the plays on my list. Sometimes I would see others make the move but wait on the select few I wanted to focus on. The key was picking a handful that I wanted to invest in and then let them make the move. That way I would not lose focus and would not get stretched too thin with too many positions.
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