How An Amateur Got Into the Top 1 % of CAPS Investors
I'm not a professional investor, and I don't even play one on TV. I'm a doctor, which requires two basic, unalterable traits: (1) illegible handwriting, (2) the ability to furrow one's brow thoughtfully and wisely utter, "Um-hm, I see" at critical moments, and (3) absolute ignorance of the laws of mathmatics, economics, and investing.
So how did I end up in the top 1% of CAPS investors (99.11 percent as of today)? Possibly just dumb luck, but in addition to that, here's how I've approached investing:
(1) relentless self-education: I've been educating myself about investing for over a decade, major sources including Louis Rukeyser's Wall Street Week (both TV and newsletter), Motley Fool website, Seeking Alpha website, subscription to Investor's Business Daily for a few years, books (by Peter Lynch, Warren Buffett, and others), free email articles from Dividend Growth Stocks, S&P Reports available from my Ameritrade account, and Stephen Leeb's newsletter. Overall, a lot of good info is out there for free (especially the Dividend Growth Stocks emails) and I haven't ever paid for any high-priced services.
(2) passable discipline: I've stuck with two basic principles over the years that have served me well to date: (1) to quote the late Louis Rukeyser, who was quoting one of the Rothschilds: "Buy at the sound of cannons, sell at the sound of trumpets" - a very poetic way of expressing the axiom "Buy low, sell high." Consequently, I bought many issues, including using margin for funding, during the lows of 2008-2009, and I'm much more selective in my stock buys at present. (2) except when special opportunities present themselves, sticking with proven, dividend-bearing quality issues. These include blue chips like MCD, REIT's like NNN, and MLP's like LINE as well as Oneok Partners (OKS).
(3)Looking for a good story: a well-run company with a unique product or service, positioned in an arena of future growth. This led me to issues like Whole Foods Markets, gas/oil distributor EPD, fertilizer producer CF Industries, and others.
(4) minimizing trades: with an indivdiual account on internet access, it's easy to fall into a pattern of excessive buying and selling; pretty soon one loses one's discipline in this manner. With maturity and discipline, one will resist this temptation, even to the point of passing up opportunities if one has recently deployed investment resources elsewhere. My self-imposed limit is to make no more than one purchase and one sale per month, although I generally make fewer transactions than this (I've made only one purchase so far in 2012, OHI, and no sales).
My real-life portfolio does better than my CAPS portfolio, because I leave a number of issues in CAPS just to follow their prices, even though I never would have bought them in the first place (First Solar, FSLR, for example). So, that's it. A long time studying and a few basic rules - especially listening for the cannons and fleeing from the trumpets - have served me well.