3 Steps To Profitable Stock
Picking
Stock picking can be a complicated process but does not have to
be. Many investors have different approaches. However, it is wise
to follow general steps to minimize the risk of the investments.
This article will outline these basic steps for picking high
performance stocks.
Step 1
Decide on the time frame and the general strategy of the
investment. This step is very important because it will dictate the
type of stocks you buy.
Suppose you decide to be a long term investor, you would want to
find stocks that have sustainable competitive advantages along with
stable growth. The key for finding these stocks is by looking at
the historical performance of each stock over the past decades and
do a simple business S.W.O.T.
(Strength-weakness-opportunity-threat) analysis on the company.
If you decide to be a short term investor, you would like to
adhere to one of the following strategies:
a. Momentum Trading
With this startegy look for stocks that increase in both price
and volume over the recent past. Most technical analyses support
this trading strategy.
Consider stocks that have demonstrated stable and smooth rises
in their prices. The idea is that when the stocks are not volatile,
you can simply ride the up-trend until the trend breaks.
b. Contrarian Strategy.
This strategy is to look for over-reactions in the stock market.
Researches show that stock market is not always efficient, which
means prices do not always accurately represent the values of the
stocks. When a company announces a bad news, people panic and price
often drops below the stock's fair value.
To decide whether a stock over-reacted to a news, and look at
the possibility of recovery from the impact of the bad news. For
example, if the stock drops 20% after the company loses a legal
case that has no permanent damage to the business's brand and
product, you can be confident that the market over-reacted.
With this strategy try to find a list of stocks that have recent
drops in prices, analyze the potential for a reversal (through
candlestick analysis). If the stocks demonstrate candlestick
reversal patterns, I will go through the recent news to analyze the
causes of the recent price drops to determine the existence of
over-sold opportunities.
Step 2
Conduct researches that give you a selection of stocks that is
consistent to your investment time frame and strategy.
There are numerous stock screeners on the web that can help you
find stocks according to your needs.
Step 3
Once you have a list of stocks to buy, you would need to
diversify them in a way that gives the greatest reward/risk ratio.
One way to do this is conduct a Markowitz analysis for your
portfolio. The analysis will give you the proportions of money you
should allocate to each stock. This step is crucial because
diversification is one of the free-lunches in the investment
world.
These three steps should get you started in your quest to
consistently make money in the stock market. They will deepen your
knowledge about the financial markets, and would provide a sense of
confidence that helps you to make better trading decisions.
STEP 4
Buy blue chip IPO
It costs only $2 to apply for the shares in an IPO.
MOST blue chips IPO debut above its IPO prices.
I bought Mapletree GCC, SPH Reit and OUE HT recently.
I got 6 lots from Mapletree GCC, 3 lots from SPH Reit and 8 lots
from OUE HT.
The gains are $500+, $200+ and $100+ respectively.
The money is not a lot, just enough for some
kopi. 