Investment Strategies
 

(NOTE: The information presented below is targeted at investing outside of your companies 401k (or similar) plan.)

WHAT !!!!!!!! Are you kidding ?????? Those Mutual Fund managers are the experts. Its what they do for a living !!! They live it...they talk about it at dinner.....they dream about it at night !!! How do you (Mr/Ms construction worker, engineer, nurse, lawyer, salesperson, etc.) think that you are qualified to properly pick individual stocks ?????

Well the answer is........................................... "you ain't".

So how are you ever gonna get to where you can pick an individual stock ?

There are 2 basic options:

1)    Start wanting to pick individual stocks as a young child. While the other kids are out playing, review your mock portfolios over time to develop your stock picking wit. Read the annual and quarterly reports cover to cover of all of the stocks you follow. Paste charts all over your room tracking the companies fundamentals over time, and correlate their earnings to stock appreciation or depreciation. Continue this into college where you only take classes that will teach you more about fundamental and technical analysis. After your graduate work, get a job as an analyst. Then after 20 years of hard dedicated experience, you are ready to pick your first stock...........OR

2)    Find somebody that did all of that stuff above to tell you what stocks to buy.
 

Lets assume you picked that later option. How do you know if you should really listen to this person anyway ? Well my friends, that IS the hard part. So therefore, you are at least gonna have to start to pursue the first option before you can feel comfortable with the second option.

So now I see the mouse inching toward the "BACK" button. HOLD ON.....STOP ! Admit that while you were heading for the BACK button, you thought, "I know lots of people that buy individual stocks, and they are not professionals".

Can you ever really learn to pick stocks ? There are ways, but you must have patience on your journey to becoming a good stock picker. History has shown that seasoned individual investors can on average beat the mutual fund managers hands down

There are several types of individual stock pickers that I have seen and categorized (and been some of them myself) over the years:

1)    The Los Vegas investor. Similar to the dart board and the coin flip investor, they enter the market on an upturn and pick stocks that go up for a while. Sometimes they win, sometimes they roll "snake eyes". Usually, in the long run, the roll lots more snake eyes.

2)    The "Alan is buying this so I should too" investor.  They feel that they must buy a stock that someone they know just bought. That someone usually turns out to be a Los Vegas investor.

3)    The "I got part of the picture, so I am certain" investor.  Sometimes this is Alan also.

4)    The "This investor guy called me out of the blue with this hot tip" investor.    The folks calling were usually "carpetbaggers" in a previous life.

5)    The "I just heard about this on TV/Newsletter investor".   Maybe this person is not so scary. Your job now is to start asking lots of questions to see if there is a viable long term story for this company that you can substantiate through a multitude of other means like annual/quarterly report and recent news information. Unfortunately, this could also be Alan.

6)    The "This stock was recommended by someone who I have followed for years and I trust" investor.   It takes a long time and a lot of work to find those very few people out there in the industry that really have a clue. Make sure that you really understand all of the nuanses of their recomendation, and you do what it takes to verify their story. Ask the question, "Has this person really PROVEN their abilities to me over the long term". How much risk do I have to accept with this person, and does it coincide with my acceptable risk level.

I spoke previously of the young child and his "mock" stock portfolio that he kept of stocks that he tracked. This is a good strategy for honing your stock picking skills as you continue to dollar cost average into your diversified mutual funds. Remember, one day, even you too may be qualified to buy an individual stock. That large mutual fund portfolio will most likely be where your stock buying funds come from.

YOU MUST UNDERSTAND THE FUNDAMENTALS OF THE COMPANY, HAVE TRACKED THOSE FUNDAMENTALS DILIGENTLY OVER TIME, BE ABLE TO INTERPRET THE FUNDAMENTALS OVER TIME TO DETERMINE THE COMPANIES LONG TERM GROWTH POTENTIAL, AND BE ABLE TO CORRELATE "THE STORY" OF THE COMPANY WITH THE FUNDAMENTALS. IN ADDITION, YOU MUST UNDERSTAND MONITARY POLICY, THE "NEW" GLOBAL ECONOMY, HOW THE MARKETS REALLY WORK, AND HOW THIS ALL FITS TOGETHER INTO THE STORY OF YOUR COMPANY.

One more thing.......you have to figure all of this out as soon as possible, because you are probably loosing money right now.