89nk wrote:
I was debating on this, but I feel like I do not have enough knowledge on how to go about picking stocks.
How did you guys learn the lingo, and how to start investing? By reading books on trading or just someone taught you?
I've been interested in the financial markets since I was a young teen. During lunch hours, a group of friends and I would surf the internet to check stocks and their prices, etc. I didn't start actually using my own money in the market until I was 18, so that makes 10 years now that I've been an active investor/trader. I have learned a lot by "paying tuition" in the marketplace, but I've also learned that you should find a sector that interests you and know as much as you can about it: what are the companies with the best stock performance and why?, which companies are laggards and why?, what is the forward outlook for the overall sector and how does it fit into the macroeconomic environment you foresee?, etc., etc. Beyond that, I've done a lot of self-study reading books, business news, and having some key mentors.
But, before all that, you need to define what you are. Are you an investor? trader (speculator)? or both? a gambler? Once you know what type of market participant you are, decisions you make in the marketplace are no longer made on a whim. That is, unless you're the gambler. Please don't be the gambler in the market, because the market will gladly take your money away from you. But, knowing whether you're an investor or trader (or both) will help you define a strategy/plan on the actions you take in the market. Investors normally will take a year or longer outlook on the market, whereas traders can take as little as a few seconds. With that said, it doesn't matter what you think. The markets don't care if you're "correct" on your position. You don't have to be "right" in the market to make money. The market is simply a mechanism to extract money from other market participants. Markets are zero-sum, meaning that for every buyer of a stock, there is a seller. Taking that further, funds from your account are flowing into someone else's, and vice versa. The buyer believes the price will eventually go up, or else he wouldn't be buying. The seller believes that the price is high and either wants to book profits or believes the price will eventually decline (i.e., the short seller). Someone wins, and someone loses. And, the market doesn't care what you think, even if you're perspective is fundamentally correct. The market is simply an expression of human behavior, and human behavior is not always "sound". I am talking more like a trader, because that is how I act in the marketplace. I do keep a long-term investment perspective, but I also try to think as the trader does, and exit positions at a profit with the aim of buying it back again cheaper than I sold (or selling higher again from where I bought).
OK....I'm getting too long-winded here, so I'll answer how to pick stocks.
A lot of times I find out about stocks just by searching through Bloomberg, WSJ, FT, Reuters, and Yahoo Finance. You can search stocks by sector quite easily on Yahoo Finance, and you can also search by mutual fund specialty and then find out which stocks particular funds like. When you find stocks that interest you, sort your stock picks by sector and build up your "database". Another way to find companies is by studying the components of various sector indices. Sector indices such as the HUI Gold Bugs Index tracks the performance of a select group of precious metals stocks. I have used that index as a starting point, and have then selected certain stocks which meet my criteria. I have also hung out a lot on stock message boards and came across new companies to research for myself. Word of caution though on message boards. Usually, someone is always selling a story to benefit their own position. Rarely will you find genuine people on those message boards. But, sometimes you get lucky and there are good people. Bottom line, I always study the charts of a particular stock. The chart tells me what's been going on with the stock, i.e. trend of price movement. Basically, the chart is a map of the human behavior around a particular stock. Are people selling this stock (chart pattern is down)? Or are people buying this stock (chart pattern is up)? Does the price justify the fundamentals?! I will determine if there is a clear trend, and then further research the company by checking out the website, PRs, balance sheets, etc. If this is a long term investment, I must like the company's forward prospects and then look for the proper entry. I will avoid buying while the stock price is going up. I want to buy it on a dip. However, if I am only in for quick trade, I will actually buy a stock while it's rising, but only after it has take out a former high. Typically, when stock prices take out highs, they tend to keep running higher until the demand wanes. I want to be out before last call, and not be caught holding an empty drink in my hand. This is easier said than done.
Another option for selecting stocks is to use market screeners, which are sometimes proprietary, or you can use Professor Greenblatt's (of NYU Stern) "Magic Formula Investing" tool to generate a list of companies that "may" represent good buys:
https://magicformulainvesting.com/book.doThere are bull and bear sectors everywhere, and I think everyone should be comfortable with going both long and short stocks, because there is money to be made in both directions. Also, what is your edge? Meaning, what knowledge or perception of the market do you have that not everyone else may have, and how does it aid in your decision-making. Technical analysis of charts is not really an edge, because a lot of market participants use it. A lot of the time it becomes self-fulfilling, so you can use signals and trend analysis to your advantage. With that said, it is useful to use technical analysis as only a guide in determining when to enter and exit positions. But, technical analysis of charts alone is not sufficient. If you're a long-term oriented investor, you need to have a fundamental perspective on a company within a given sector and be able to justify why so. If the market goes against you rather quickly, then you will stick to your views and not be kicked out of your position. Maybe you think the price has become more attractive so you buy (or sell) more.
In my opinion, this CNBC game is not for the long-term investor. Those who are successful know how to think/act like a trader does, look for out-sized gains under short-time frames, and go with the flow, i.e. follow the momentum.
close
06 May 2008, 10:20
I'd need to familiarize myself with NYSE before i can start this 
