Does this help new investors?
I thought I'd share a little of how I've been investing lately. It changes constantly based on the way I view the market at any particular time. This isn't meant for you to copy, I'm not selling my investment style. It's just meant to give you an idea of my limited thought processes. There are plenty of step-by-step investment books that lead to a step by step failure. They are always selling you a plan based on past performance. Past performance never equals future performance! Are there things that are proven to work over and over again? Sure! Ben Graham's techniques will probably work for the next hundred years, but they work much better at a market bottom than at a market top. Buffett's plan of being greedy when others are fearful works great in the long term, but you never know how long that term will be.
Ok, first a little primer... When I first started investing, I read every investment book that I could find. When you first start reading them, you get confused because a lot of them are contradictory. This was a big hurdle to me to begin with, because how was I to know who to agree with, being a novice investor? As I kept reading though, it finally hit me that they were both right! What I didn't take into account was that the two differing strategies invested at different time frames! After I made that breaktrough, I realized that many of the hundreds of strategies overlapped in time and I could easily go back and look a a chart and the news from that time-frame to get an even better idea of the signals leading up to that strategy working. Do I use all of these hundreds of strategies? No! Do I use one pure strategy at a time? Occasionally, but that only happens when I am absolutely positive that everything is pointing to that strategy. What I usually do is a mix of different strategies depending on my feelings at the time that I buy stock. I might change a strategy after I've bought a stock, but I usually buy it with an investment syle in mind. Ok, now most of you at this point are thinking I'm a few fries short of a happy meal and although I can assure you that I am, that is not necessarily a bad thing for an investor. The best comparison to my investment style that I can make is comparing it to playing poker. I'll expand on this later, but for now I'll just say that good poker players play the same 2 cards many different ways based on the signals they are getting from other players at the table and the way the common cards hit the table. The pros have all read the many different books on how to play poker and over time develop their own style that is a mix of different styles. If they want to have any longevity, they keep adapting that style to the competition.
Ok now more about my own style... My style is based on my own primary rules first! Before I do anything else, I have a ton of personal rules that I go by. Most of these rules were developed to stop repeating mistakes. For instance, one of my rules is to never invest in American Auto companies, Airlines, or Oil refiners. I might break this rule, but the rule is there to make me stop and think about what I'm doing rationally. Just like a poker player may have a rule not to call a re-raise with a pair of deuces, he might break that rule if he sees a tell from another player. I did break that rule not too long ago when I bought Ford at about $1.50 and sold it later for just under $6.00. Given the huge value play at the time and the fact that the government was willing to support them and the fact that they didn't need the support, there were just too many enticing tells to stick to that rule. OK that still doesn't give you an overall trend about my style. Every poker player has an overall trend to his play. He can be aggressive or passive, or Mathmatical or emotional, etc... I'd like to think that overall I used to be a "Buy and Hold" investor. That's probably where I made the most money as well. A few years ago I switched to being more of a "Buy and Worry" investor. (I'll explain more later) Now I'm more of an opportunist that is just waiting for a market correction.
My "buy and hold" period- Ok technically I was always "buy and worry" investor, but anyone looking from the outside would have called me a "buy and hold" investor. I've concentrated on undervalued companies and generally held them for quite a long time. I pretty much kept close tabs on all of my holdings though, and checked the news pretty much daily. I'd like to think that about 60% of poker is knowing whether to fold, bet or raise on the opening bet. I think that about 60% of a winning investment is buying at the right time and price as well. The thing that gets me the most with "buy and hold" investors though, is that they think it's "buy and forget"! Even if you hand deliver news to them that the CEO may be going to prison, they counter with, "That's OK, I've already done the hard work and DD with this company and bought for a good price and I'm in this for the long haul!" I totally disagree! DD and buying at the right price may be the most time intensive and the most important part of investing, but knowing when to sell is the hardest part of investing! It's laying down the "Big Slick" to a pair of "Pocket Rockets". It's calling the bluff on a straight draw! If you can't figure out when to sell, you won't be successful and my opinion has been if you don't know what to do, sell it at a profit and find an easier stock to figure out. This period was dominate for about a decade.
My "buy and worry" period- This started a few years ago. When the lies and bubbles got to be too much, I truly entered my "buy and worry" period. The only thing I wanted to hold long term in this period was precious metals. Believe it or not, I only bought gold to begin with, later I sold a lot of that gold and bought silver. I'm still buying silver, and still have some gold as well as a bit of platinum and palladium. I literally learned about metals on the fly in this period and I first started storing the metal in my closet. A safe deposit box is not safe in this type of market and back then I didn't know how to store it. I thought I was brilliant when I decided to store it inside a junk television in the basement. I cut the end of the cord off the TV and worked it over with a wire brush and stored a bunch of junk in front of it. I was the only one that new what was inside of it and I thought it was pretty safe until I found a better place to store my metals. I still bought undervalued stocks, but I spread myself out to about 40 stocks when I usually invested in about 15. I sold any stock that made 17% or gave me the heebee geebees. When the crash hit in October of last year, I got hit like everyone else, but I didn't get hit very hard, because my stocks were already undervalued. I feel sorry for the "buy and hold" guys here. They were and still are right, but it will take a while for them to catch up.
My opportunist period- I jumped into this period on the day that the market bottomed, (which happend to be my birthday) March 9th, 2009. I was more agressive on CAPS, but not much more. I took full advantage of the market turnaround and then I guessed wrong a couple of months later about another drop. Around May 20th, I was projecting another drop in the market that never happened. I went all in on Caps, but thankfully I don't usually short stocks in real life. I did get burned on a couple of puts, but overall, I didn't do too bad. Around July 20th I started to play a sideways market and I've done pretty well at it. Most of my money made here is with short term option plays. Straddles and strangles etc... I'm still expecting a big move in the market, but until it happens, I'm just playing short term bubbles. Very short term bubbles.
So what should you take away from all of this?
1) Although plenty of people including myself would love to help you, you have to figure this out for your own damn self.
2) Once you figure it out, don't rest because the rules change every day.
3) Once you start to succeed, get worried.
4) Both success and failure are the same learning experience, pay attention to both equally.
5) You fail only when you give up.
I've put a lot of thought into this to show you how gray investment really is when all the books make it look black and white. Investing is a zero sum game. For every winner, there will be a loser. Your just trying to have more wins than losses. Once you understand the game, you're just trying to improve your efficiency.
As always, I hope that this helps,