Thu 2 Aug 2007
I was debating whether to post this entry now or not because of the recent slump of the stock market. Then I thought about it and decided that there is no better time than now to post it. My advice is basically for finding stocks trading at a discount and if you know they are good companies and you have done your research, they should rebound…
Check out this website
Click on Top Tens in the Upper Menu Area
Open up any of the Top Ten High Rated Stocks.
Here’s where you need to do a little DD (Due Diligence). I like to read what all the various users say about the particular stock and take their opinions in to account. I especially pay a little closer attention to the users that have the higher ratings and have been fairly successful on CAPS.
At this point I “Buy” a stock in CAPS. This allows me to pick a stock at a starting point and watch what it does for a few weeks to a few months with out actually investing real dollars. After some time has passed, I re-asses my stock picks and look for the ones that have actually gone down in price. I then repeat step 4.
After repeating step 4, if there is no logical reason for the price drop of the stock, I then purchase the stock in to my actual portfolio.
If you have done all the proper DD and you know that this is a good company then most likely the reason the stock has dropped is because of panic sellers due to market conditions. As of this posting, this strategy has worked for me. The hardest part is giving the stock some time before actually purchasing it. Do not assume a stock is good before watching the stock for a little bit. It is important to understand how stocks react to various market conditions. Stocks change based on oil prices, housing markets, technical advancements, interest rate hikes and reductions and so forth. A lot of times that stock won’t even be in the industry but will still have a reaction. It is good to have a feel for these things before you get your actual savings invested in to it.
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August 2nd, 2007 at 10:51 pm
Hi Matt and Joe,
I learnt about this site from SHARPE Investment blog.
Your articles are pretty easy to understand (so far at least) since I know nothing about investment though I’m eager to learn more about it
You guys don’t have a contact page, otherwise, I’d email you rather than leaving a comment here
Will check out CAPS later.
August 4th, 2007 at 8:55 am
I think you need to go to diehards.org and read up on the merits of indexing/buy-and-hold investing vs. the perils/challenges of picking individual stocks. If you believe you are better at picking stocks than the majority of investors out there (taking this method you describe into account), more power to you. But, given the institutional tools the big boys have like computer models and in-depth information about a company (not to mention insider information), I think the odds are against you in every way, shape, and form. It is people who believe they can “beat the market” that ensure index funds outperform mutual funds by a large percentage.
August 4th, 2007 at 8:58 am
oh, and btw, once they abandoned their mantra of low-cost investments in no-load index funds, MF has become a pariah of sorts among the personal finance community. I don’t just point you to diehards to be a jerk, but because I sincerely believe you’ll find much better/sound advice there than that from the jokers at MF.
August 6th, 2007 at 6:40 am
I don’t agree with a lot of the investment advice that the Motley Fool gives. I never claimed too. I go to a section of The Motley Fool, called Caps, where users pick and explain why they like certain stocks. Once I’ve found a few that look like winners, I study them and do my own DD on them. I watch them for weeks to months to see how they react to market conditions and then I buy when I feel they have dropped due to other reasons other than a market correction.
The point of my post was not, “Go read all the advice at Motley Fool and Live by it.” It was simply a post explaining how I find stocks before I start studying them. Most of the stocks I pick in Motley Fool Caps I never actually put in my real portfolio. I just use it as a tool to watch the stock’s movements…
I am still young and I feel at this time in my life I can do better picking individual stocks than I can with funds. I don’t think funds are a bad thing but while I am young, have more free time now than later, and can afford to suffer some loses if I make a huge mistake now, I think stocks are they way to go.
Thanks for the comment.
August 6th, 2007 at 4:57 pm
I never implied you were advocating that people “go read all t e advice at Motley Fool and Live by it”… was merely pointing you to another resource and touching on how suspect MF has become over the past few years. The CAPS tool might be helpful, but I still think it’s something that promotes market timing and that in the end, you will discover that very few people can “do better picking individual sotcks than” they would “with funds.” That assumption is precisely why a vast majority of people who invest in low-cost index funds do better than the average investor (who, admittedly, unwisely invest in “hot” mutual funds with high expenses/loads). Unforunately, the premise that “I am different… I can pick the winner” has been shown to a fallacy by countless statistics, and communities like diehards are filled with investors who make a pretty good case against individual stock picking. Furthermore, you should check out some articles about the difference between how men invest and women (men more frequently take unnecessary risks and buy into the thinking that we’re smarter than the majority of the investors out there, so our experiences with the market are going to be “better” than theirs).
What’s more, your assumption that since you’re young, you can afford to suffer some loses if you make a huge mistake now strikes me as pretty naive. You say “stocks are the way to go,” but were stocks the way to go in Japan just before 1989? Check out this recent newsclip featuring a very smart, though bearish, guy:
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vJck9ysOID2E.asf
then again, there’s a reason they call him “Dr. Doom”… but, quite frequently, his analysis are correct. Still, I guess if you’re going to learn, it’s better that it’s not vs. when you’re older and you *really* have a lot of money to lose.
Regardless, I think it’s great that you’re young and are actively thinking about your finances and whatnot. In fact, I’m quite young too. However, I think that plays against us because we’ve grown up in a time of unsurpassed prosperity where, save for a few exceptions, the market has gone up, up, up. I would just caution you AGAINST buying in to the truism that it’s okay to invest in the market and take losses when you’re young because, over time, it all balances out (after all, the market always goes up, up, up in the long run). Ask the japanese if that’s the case. Ask Peter Schiff what he thinks about domestic equity. Be cautious. I also invest, but I lean much more heavily towards bonds than most people my age. Consider the need to preserve capital too, but the risk inherent in equities is much greater than our recent memories would lead us to believe. After about five years or so of egregious market returns, I hope you will come back here and read this comment and reflect on this comment and see how it reconciles with your situation.
August 6th, 2007 at 8:14 pm
Thanks CW for your comments. You are pretty much the exact reason for the creation of this site. So we can share our ideas and recieve feedback from others who have common interests. I am never against re-evaluating my investment strategies. I was merely explaining a strategy that has worked for me this far.
Thanks Again,
-Matt
P.S. Thanks for link. I have visited it and bookmarked it. I believe it will be a valuable resource.
September 11th, 2007 at 11:20 pm
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