Learnings of a Relatively new Investor
I started seriously looking to invest in a "short-term" portfolio around November of 2008 as I desired to increase the returns for liquid money that was not being utilized as my on-line savings account % returns evaporated from nearly 4% to around 1.5%.
Since that time, I have learned a lot of things about investing/trading. I figured that I would pass on a few of the biggest keys that I have found to successful investing.
1) Keep some cash on hand to take advantage of opportunities that you would have never imagined until you see them. I tied up all of my available money right away and had peanuts left over to take advantage of huge bargains at the bottom and some in the middle. I was only able to invest roughly 10% of my portfolio at the bottom (SBUX and GE), and I missed a lot of eye-popping opportunities overall. I'm always at least 10% in cash now to make sure I can jump into a great opportunity. I've gotten a few gems this way. There is nothing like getting a nice 5-10% discount for no reason whatsoever. I was able to get into BWLD when it dropped because of a new government requirement to post food fat content, which I correctly deemed as inconsequential to the growth engine of that company and jumped on the cheap shares. It was an eye-popping 6% one-time drop that will never be repeated. Wierd stuff like that happens.
2) WATCH a stock based on revenue and earnings growth, debt and the overall growth position that the stock offers. BUY that stock based on the valuation, in relation to all of the above. SELL that stock when the valuation no longer reflects a discount to the above criteria. There are enough good companies that there is no need to buy good companies at bad prices or to buy bad companies at all.
3) Know what your BUY price target is. Know what your SELL price target is. BUY when the stock gets to the BUY target. SELL when it gets to the SELL target. It sounds simple, but it's really easy to move your BUY and SELL targets based on emotion if you let yourself do it. Your unemotional targets are much much more likely to be right than your emotions.
4) Timing the market is hard. Timing a stock is not so hard. Index fund buying and selling requires timing the market and it's easy to be very wrong. If you are watching a stock long enough, it's not that hard to know what is low and what is high. Buy and sell based on a stock's valuation, not what the market is doing.
5) Understand the fundamentals and the growth story of the stock that you are picking. Know what is good and bad for that company and what is just noise when it comes to news. News is roughly 85% noise.....but that 15% of real news can really move a stock.....especially a small cap.
6) Big movers move big in both directions. Understand that and don't get pushed off by fluctuations for no reason. I got scared off of a stock that I really liked and sold an eventual 100% gainer for a slight loss.
7) It's easy to find bargains at the bottom of a market. It's hard to find bargains at the top of a market, but there are always bargains. There are definitely ALWAYS under-priced stocks, but it is sometimes harder to find them. There are always growing dynamic companies, even in a recession/depression.
8) Individual stocks yield higher returns than mutual funds......period. Now that I understand the basics, I see no reason to blend bad companies with good companies as a part of my portfolio. Diversification doesn't decrease your risk, just your return.
9) Small caps are a very large bargain pool, but they are not all deals either. They are most likely to be both over-priced and under-priced.
10) Commodity dealers understand macro-economic movements better than other large market players. You can learn a lot by watching oil move.
For experienced investors, these are all "No duh" types of things, but it has been a great journey for me so far. I've learned a lot of markets and stocks in one year, made some money, missed out on a lot more and set myself up with a foundation of knowledge that will set me up for a lifetime of successful investing.