Don't Outsmart Yourself
November 07, 2012
– Comments (3)
I've been reviewing quite a few members and their picks and noticed two very dangerous trends. Many investors who claim to have "Low" experience are playing the Pinks and OTC's. Also, these investors have too large a number of short positions for a beginner's portfolio and many of these shorts seem highly speculative in nature.
Whenever I talk to someone new about investing I tell them to zero in on what you like and use. Next take a look at the companies and see if they are being run well. Finally, look at the financials. Low debt, fair PE, good growth, good returns, good margins. If all things look acceptable wait for your entry point, usually a cup formation well below the 200 day moving average and make your move. Sometimes that may take a while and it takes some guts to pull the trigger after everyone just ran for the hills. Bad news is often your best friend in these sort of value investments when looking for entry points.
Remember to always take future macro-economic forecasts into consideration. Don't make your move if people are talking about bubbles. Tech bubble, housing bubble, the future gold bubble (ya, I'm making a prediction there), etc.
You'll notice that many of my picks are based on these technical entry points. You'll also notice that many of these companies are ones that I use personally. Yes, even vegetarians like McDonald's milk shakes. Finally, I want to encourage everyone new to investing to learn basic technical analysis. When I said "cup formation" did you scratch your head? Not a good sign. Learn about technical analysis.
Playing speculative stocks and shorting a great deal can often lead to disaster even for the most experienced professionals. It is not something that beginners should even attempt to do or mimic. Every beginner in my ideal world would start with fundamental knowledge of what makes a value investor successful coulpled with a good technical analysis education. Stay away from speculation and invest in what you know, understand, and use.
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