Tim Reazor
Chief Investment Strategist
NorAm Asset Management
It’s easy to be right in hindsight. I know many a pundit or publication that brags after that fact. They’ll tell you or write about when you should have bought or sold a stock. They’ll tell you everything you did wrong – inferring of course that everything they did was in fact spot on. These folks I’m talking about come off as impervious to mistakes. They’ll give up their intellectual prowess over you if they ever would be honest. We all know people like this don’t we. We think they are superior because they spout off in the press, on Twitter and newsletters… present company excluded J So what’s my point?
I believe we can achieve great things together.
It’s ok to be scared during markets like the one we’re in. It’s scary to lose your gains from 2013. It’s even scarier to execute the strategy that worked so well in 2013 only to have it fail miserably in 2014 and have no clue how to fix your money losing ways. The pundits and press I hear and read have all the answers – but yet they don’t give you any practical advice. They talk around the issues – they don’t talk to you.
Now I’ve thrown a thick blanket over a wide swath of media – let me be clear. There are some great folks out there doing incredible things. I know many of them personally and I love them. In the same breath we’re all aware of the pointless radio shows, mindless blogs and blowhard press that infests the investment education waters and makes them murky to wade through.
Let the healing begin. Investing is 90% psychological. The investing crowns don’t go to the folks with the best educations. Successful investing starts with the belief that you don’t know the outcome. You need common sense and to believe in yourself. I’ve found that the only thing and investor can do is align as many facts as possible in a row and then put yourself in a position to make money.
Whether your facts and thesis work out or don’t work out, you need to rely on rules.
If you’ve been dinged in the markets this year let’s review what may have gone wrong – and fix it now so it doesn’t happen again using rules. Here are some bullet point situations and fixes.
•My losses are crippling – I’m losing too much money.
•Set a hard stop at 5% from where you’ve entered your stock or ETF
•If you’re giving up all or a good portion of your gains try selling into strength. If you’re up 12%-18% in this market take all but a 1/3 of your trade off. This will help you harvest profits and still participate if the stock goes higher. Sell the last third on any gap down or break of the 50-day simple moving average.
•I’m picking the wrong stocks.
•You’re not spotting the rotation in stocks quick enough. It doesn’t happen overnight. You have to be aware of sectors and subgroups. We rolled clients out of tech names on March 24th and 25th and into energy names on April 1st and 2nd. Why? Because at NorAm, we spotted the rotation taking place. You’ll want to invest the top 50 subgroups. What you want to look for is rotation. If you spot groups moving higher or lower every week you’ll know where the institutional money is flowing. I do this kind of grunt work every Sunday morning. I count the rotation by group each and every week. Doing this drill will always keep you ahead of the curve.
•If you buy three stocks in a row and all three purchases fail you need to stop trading for two weeks. You need a break. Don’t lose confidence – this is a marathon not a race. You just need to assess the situation. Make sure you’re in the right groups and right stocks.
•What are the right stocks? They are stocks that are in the upper 2% of the market. That means that they are the best stocks out there. Often times they are at or near their 52-week or all time highs. That’s a good thing. If you screen for stocks with the best earnings, sales, revenue, return on equity and institutional support and you buy them at or near their prior highs – your results should improve. Why? Because these stocks are only strong because the people that control the markets are bidding them up – the institutional investors want these shares – and if they want shares in the best stocks then so do you. Stop looking for value or beaten down merchandise. You don’t go to the car dealer and say I’ll take the beaten down clunker leaking oil please…. You buy the best car you can afford. Stop buying clunkers and you’re results will improve.
•Know the trend. If you look at a chart of the Nasdaq or S&P and the trend of prices is heading lower the tides are against you. Wait until the markets clear prior resistance. Why? Seventy-Five percent of stocks are going to follow the general trend of the market. If you’re trying to go long in a downtrend you have a 75% chance of being wrong. Why not wait until the odds are in your favor.
Hopefully this is practical guidance you can use to improve your results. You’re not alone in this investing world. I’ve made every mistake you have and some you haven’t even thought of yet. All of my personal investing rules have been born out of my mistakes. I’m hoping that if I share my rules your mistakes will be minimized.
If you’d like to talk about rule based investing or if you would like to join us for our trading / investing open house please email me – Tim.Reazor@NorAmAsset.com
Best Regards,
Tim
The information presented is for educational and entertainment purposes only. Opinions and information expressed are based upon information considered reliable. However, factors are constantly changing and should not be relied upon. You need to do and verify your own research.
Moreover, no reader or listener should assume that any information or discussion presented serves as personalized investment advice from NorAm Asset Management, Inc. or from any other investment professional, and is not an offer of solicitation for the sale or purchase of any specific securities, investments, or investment strategies. You need to have your own, individual investment advice suitable for your personal situation.
Investments involve risk and unless otherwise stated are not guaranteed.
