Investment Method and Philosophy

My investment philosophy is to buy stocks long when the market conditions are right. So what does that mean? The market goes up and down every day but if you connect the dots you see the market prices make higher highs and higher lows which points to an upward trend, or the market can make lower highs and lower lows or a downward trend. Or the market can go side ways or be in a consolidation phase. Best time to buy stocks is when the up ward trend is intact. I use several indicators that have not failed me yet to determine bottoms and tops but the most reliable one is $BPCOMPQ, NASDAQ bullish percent index (See previous posts). I also use the Volatility Index (VIX) and the number of new 52-week highs and new 52-week lows and trend lines, which I will discuss sometimes on a daily basis.

With regard to picking stocks my philosophy to find stocks that have been knocked down without any real bad news or fundamental change to their outlook or their business. These stocks have a habit of reporting consistent earnings growth in the past 8-12 quarters, so they have strong management, they are undervalued with respect to their projected earnings growth and there is some theme or story about the stock, which is intact.

Finally, when to sell or take some profits. Stocks don’t just go up and up forever; they usually trade between upper and lower trend lines, some stock however do go up almost in a vertical fashion but that may last a few days, they usually revert to their trend or crash.

How I buy and sell, First I make certain the Market is buyable, then I establish that a stock meets my criteria, I buy 1/3 position to open, if the stock goes down 10 percent I close the position and look for another. If the stock moves sideways or up I will buy another 1/3 and buy the final 1/3 up to 5% on the upside. So when to take profits. I take off 1/3 when the stock hits its upper trend line or there is a blow off day, where the stock make intra-day 52-wk high during the day and either closes down or flat or slightly up and the volume. This is a sign of a tired stock. There are times that after a few days of profit taking the stock will continue to run up, that’s why its good to not take all your position of the table. If the stock breaks down sell another 1/3, sell the final 1/3 if the stock hits its 13-week moving average.

It is important to know there are many different methods to picking, buying and selling stocks. Nothing is set in stone and a lot of it is a matter of practice and finding a way that you are comfortable with. One thing is for sure don't fall in love with your winners, cause that’s when they become your biggest losers. Stocks are just pieces of paper don't fall in love with them.