Monday, October 27, 2008

Taking Stock: Things Learned

(note: this is subject to further editing)

I have learned a TON of things about investing and trading this year!

Trading and investing, while not necessarily difficult, takes time, patience, and plenty of learning. You have to be ready, willing, and motivated to keep learning new things.

One of the things that I have noticed about investing that can be difficult is knowing what to learn and from whom, or even if there is any one set of topics to learn. I think it is something that can prevent people from getting interested and involved.

Granted, I take Jim Cramer with a grain of salt, he can be a good starting point for getting interested in investing and learning more. My problem with Cramer is that he is too erratic. One week he will be for something, and the next he will be against it. He is great for ideas, which is what I use him for, along with a sort of secondary opinion.

-I started learning about and using Technical Analysis indicators earlier this year.

I like quite a few of IBD's list of rules:

I don't like most of Jim Cramer's rules, but there are a few good ones:
1.) Buy damaged stocks, not damaged companies

I have found some of his pointers to be helpful:
1.) "Penny stocks are penny stocks for a reason"

There are a portion of Warren Buffet's guidelines that I like:
1.) Don't buy it if you do not understand it. - If you don't understand the company and what it does, then it will be difficult to follow the story.

I have learned some things from Dan Fitzpatrick, and his pointers are helpful:
1.) "Don't lose your dough"
2.) "Don't be the first one out of the foxhole"

"Buy and Hold" does not necessarily work anymore. You have to trade in order to make money. That is what I used to do. While I luckily did not lose much, I didn't really make much either (financial/credit crisis and deflationary period excluded).

-How to spot, watch, and be patient with trends in a stock

I learned to watch volume, and recognize patterns (flags, pennants, etc.). The price of a stock is not necessarily directly proportionate to the number of buyers. Patterns are not hocus-pocus, but only resultant of something called crowd psychology.

-IBD (William O'Neil) trading signals (2X volume, Confirmation, 200DMA, etc.)

-200DMA rule examples (ADM, BEAV, BUCY, CTV, UPL, RIG)

-Have been made a believer out of the necessity of using T/A
-describe money management
-There will be times in which an event will occur, but you won't realize it until after the stock has sold off considerably

-Find, recognize, and use the opinions of others that know more than you, then use that to learn from.
-When knowledgeable people start yelling "fire!", you should pay attention and investigate further. Having the ability to effectively read and understand balance sheets aids that invesigation.

New Cardinal rules:
-When in a bear market, you should be mostly in cash and only make short-term trades. I realize the difference in how much more I could have made if I had been mostly in cash, and possibly earning interest on that cash.

I already had at least one Cardinal rule, which is to ALWAYS have some cash on the side (10%?), regardless of what kind of state the market is in. There will be times when a stock sells off for an irrational reason, and you will need some cash on the side in order to take advantage of the opportunity.

I'll probobly remember this bear market for the rest of my life.

Things yet to learn, or learn more about:
-Placement and use of Stop Loss and Stop Limits. There is a proper way of placing and using them. I see it as being a form of art-form, and extremely important.

-The Financial System, and associated parts.

-Becoming more savvy at reading & understanding balance sheets. I started a couple of years ago, but never finished. I have found that it even if I don't make cohesive sense of the balance sheet, I can a least glean information and insight from the other portion of the either quarterly or annual report.

Taking Stock: ??

Turnaround? Did I say turnaround? Wow ...

One thing that I can definitely hold up on for this year is that I have learned a considerable amount of new things.