I had coffee with a lady friend this week, as soon as we’ve sat down, talk immediately went to stocks and it became immediately apparent that she has a lot. I mean, a lot of different companies, like maybe 10, and one that her broker recommended, that she thought was not liquid, but was persuaded anyway to buy.
I recommend instead to focus. Shopping gives us a treasure trove of lessons here. Know what you want, and assess the potential “candidates” against that criteria. So strike out any candidates that fail on:
> Liquidity – how I can easily get in and out of the position (this is a deadly one if you are not careful – if prices are falling, you may only get out at rock bottom prices)
> Volatility — the rise and fall of prices (avoid highly volatile stocks if you don’t have the time and temperament to monitor it)
> Strong Sector – it’s the trade with the least risk, even if you can’t do anything at some point, it will take care of itself by riding the uptrend.
For every stock I trade I want to understand as much as there is to know about it, especially how it moves in the current market, every single trading day. Like everyday. For example, with BHP – a diversified miner with oil and metals:
Supply and Demand – the customers and competitors
Price trend – historical charts for 1yr, 6mos, 3 mos, 1 month
Composite data – data sets that are related to the stock
Geopolitical – news about countries that supply / buy the product
Weather – weather disturbance
China economic news – demand picture
US economic news (I look at 15 kinds of reports)
and others (there’s more!)
There are major considerations but if you want to do your best, you have to be thorough with the data THEN crunch it down to a decision on whether you buy, sell or hold the stock. Do that for every single holding. I know it’s hard, it’s a little tedious when you are starting, but TRY, and I am sure you will find a way that you can analyze it to arrive at a good decision.
Also then you could realize the reward potential of this stock and how much you should be buying. What’s the point of having a winning stock if you only have a handful of it?
I got a few more points about stockholdings in this guest post I’ve written previously.
