- What to buy – Stock Selection
- Why – Review 30 stocks pick a handful, WHY?
- How much to buy
- When to buy– Technical Analysis helpful
- Monitor – fundamentals and technicals, especially quarterly earnings
- When to sell, fundamentals and technicals
STOCK SELECTION
There are many ways to come up with investment ideas, they include:
- Top Down, big picture. The greying of the U.S. Europe and Japan will mean health care will be more important and should present opportunities among drug, biotech, hospital supply, and health provider companies
- Bottom up, stock picking, buying stocks that are out of favor and undervalued and oversold.
- Voracious reading
- Trusted associates/friends and organizations
- Stock screening tools – Fundamental and technical analysis tools
- Many brokerage firms including discount firms, Magic Formula and other stock selection services, and black boxes provide recommendations.
It’s very important to develop a strong buy discipline.
Considerations in the Decision to Pick a Stock- It's undervalued
- It's oversold
- Risk reward relationship is favorable
- Upside potential. Knowing what the upside potential is will also help you with your sell decision.
- It’s under owned by institutions
How Much to Buy
Below are a few rules to consider when deciding how much to buy of a specific stock:- Do you have enough diversification? Does the new position overweight you in a certain industry or investment theme?
- If it goes lower, would you want to add to it? There seems to be a truism in the market that if you buy something today it will be lower tomorrow and if you sell something today it will be higher the next day, this seems to be true, especially for me. That is why you should position yourself into and out of a stock. If the stock falls after you buy consider buying more to increase your position with a lower average cost. Consider doing the opposite when you sell, keep some on the table in case the stock goes higher, especially if you have a strong market, or if the stock has momentum on its side.
- How much cash/buying power do you have in your account?
- Some investment experts suggest never put more than 5% to 10% in a position,
Monitor Your Positions
Once you own a company you must monitor the companies. - Check its quarterly earnings reports.
- Review its annual report.
- Listen to conference calls.
- Most brokerage accounts will send you news on the companies you own, if you sign up for such a service.
- Is the stock price breaking though important support or resistance levels?
When to Sell
I will issue an article on how and when to sell.
Investors should not only develop a strong buy discipline, but just as important is to develop a strong sell discipline.
If you understand the upside and valuation of your company, then when your company reaches fair value, and if you’re lucky it becomes overvalued it should be a signal to sell.
- It's undervalued
- It's oversold
- Risk reward relationship is favorable
- Upside potential. Knowing what the upside potential is will also help you with your sell decision.
- It’s under owned by institutions
How Much to Buy
- Do you have enough diversification? Does the new position overweight you in a certain industry or investment theme?
- If it goes lower, would you want to add to it? There seems to be a truism in the market that if you buy something today it will be lower tomorrow and if you sell something today it will be higher the next day, this seems to be true, especially for me. That is why you should position yourself into and out of a stock. If the stock falls after you buy consider buying more to increase your position with a lower average cost. Consider doing the opposite when you sell, keep some on the table in case the stock goes higher, especially if you have a strong market, or if the stock has momentum on its side.
- How much cash/buying power do you have in your account?
- Some investment experts suggest never put more than 5% to 10% in a position,
Monitor Your Positions
- Check its quarterly earnings reports.
- Review its annual report.
- Listen to conference calls.
- Most brokerage accounts will send you news on the companies you own, if you sign up for such a service.
- Is the stock price breaking though important support or resistance levels?
When to Sell
I will issue an article on how and when to sell.
Investors should not only develop a strong buy discipline, but just as important is to develop a strong sell discipline.