In my last post, Time to Fire up this Blog Again, I started with a little background on me and my investing experience. Today I would like to continue on with that.
Turns out that a friend’s dad had purchased an investment seminar and he offered the material to them to learn. They in turn shared it with me and I began just soaking up information. The investment seminar material was interesting but not very practical for application. It went something like this... Find the most fundamentally sound companies with growing earnings, then magically wait for two technical indicators, the Moving Average Convergence-Divergence (MACD) and the Stochastic, to magically become bullish at the same time and then BUY. Let me tell you folks, if you can screen through all those companies out there to find the fundamentally sound companies, then have enough time to follow them all checking for two indicators to become bullish at the same time, not to mention checking to make sure the companies still pass the fundamental screen as time passes, well you have more time and patience than me. When I tried this, it seemed like I was waiting forever for the right moment to buy a stock. It is not much fun to try and follow 50 stocks or so, checking all their charts, just to finally find one that meets the criteria and then potentially have the technicals break down and you lose on the stock anyway. The system just didn't seem right for me. Basically, you were looking at buying one stock per year that finally met the criteria. Too much time involvement for the return (if there was a return). I made more money just by working at an hourly rate.
So, I continued on. I began finding website resources to research and investigating stocks and charts. Technical analysis and fundamental analysis, I was hooked! I picked up some books, one being 24 Essential Lessons for Investment Success by William J. O’Neil. I found the book very insightful and promising, but as you may have noticed from the previous post, I started my investing career at literally the peak of the stock market in 2000, just before the Dot Com bubble burst. Nevertheless, I continued with my investing career and the stock market was tanking. I did not understand at all how to read and interpret the stock market. If you have ever read O’Neil’s books, this tough-time investing could be considered my “tuition on Wall Street”. Still, I pressed on investing with a token amount of money, some $4,000 or so which was probably not enough considering trading commissions.
I spent years dabbling, screening stocks using O’Neil’s ideas and some others I had picked up. I learned how to do stock screening from Jon D. Markman’s book, Online Investing. Too bad MSN has done away with their really customizable stock screener, making the book nearly obsolete. I bought and sold some stocks over the years, with a few successful trades and more unsuccessful trades. The recommendation I followed of setting a stop limit on a stock trade of 10% (if a stock loses 10% of its value after your purchase, you sell it immediately) seemed to always get the better of me. Seemed like close to every time I sold out of a stock at the 10% loss, it immediately went back up. Alas, such is life. But, there were a few times the 10% stop limit really saved me from more substantial losses. Still, losing 10% every time you invested is no way to make money.
After reading O’Neil’s and Markman's books, I decided to pick up another one of O'Neil's books, called How to Make Money in Stocks, and this is the book that actually preceded my previous O'Neil purchase. I ate that one up pretty quickly and found it to be helpful, but not an end-all be-all for my stock market investing. I realized that I like the idea of a “system” for investing in stocks, but didn’t like the emotion involved with selecting each stock individually and then riding the rollercoaster of emotion that ensued after finally pulling the trigger to buy the stock. I bought it, and it went up some… Should I sell? Or risk the chance that it will drop and stall out in price? But, what if it continues to go up? What if it pulls back and I sell because it looks like a stinker then all of sudden it takes off? On and on...
There was my problem! Too much emotion! I needed a system that removes emotion from investing. But is there such an investing system? More on this in the next post.
Cheers,
Bret