Obviously, there are thousands of stocks from which to select.
Where do you find the good stocks?
I read what some of the fundamental analysts recommend.
And then I look at the charts of their recommendations.
So, rather than spend a lot of my own time researching
the fundamentals,
I let these ‘gurus’ do the heavy lifting.
Can I trust their research? Why not – my own research
is probably no better then theirs – and maybe worse.
So, for example, I read John Dorfman’s newspaper article
on the weekend.
In the past, I have tracked many of his stock recommendations.
In a few of my trading classes, I have shown the results
of his selections.
Some were good and some bad. Overall, despite all of
his research and fundamental methodologies, his track
record is what you might expect, namely average.
In his own words today, “My favorites have been
profitable four years out of five and have beaten the
S&P 500 three times out of five. Because of a
horrible 2002, however, the average return has been
4.2 percent, the same as the S&P 500.”
Yes, the same as the S&P 500.
Any long-term retirement investor could have owned an
S&P 500 index fund or Exchange Traded fund for a very
small cost – and matched Dorfman’s powerhouse
research - with no research, no skill, and no headaches.
I guess my point here is, why go through the hassle of
trying to pick outsized winners for the long term – when what you
really need for a long-term account is a decent,
market-average return?
We expect that guys like Dorfman and Cramer will go
on ‘picking’ winners; it’s what they get paid to do.
We can also expect that all of their mighty research
will result in average returns. You can’t afford to buy
all the stocks they recommend, and this means that
you will miss some of their better picks. Of course,
you will also miss some of their losers.
So, why even bother listening or reading what they say?
Because, they have performed much of the lifting.
This can become a starting point for those of us who trade.
Want to try something that may proof fruitful in 2006?
Write down their picks. Start a file of their articles.
If their fundamentals sound good to you, immediately look
at the chart.
Start with a weekly chart of the last decade, then the
last five and three years. Now look at a daily chart of
the past two years.
Now, what do you see?
Draw long, intermediate and short-term trend lines – what
do these tell you?
What is the long-term Support and Resistance? Intermediate. Short term.
Do you see any simple patterns in the past 2-3 years? More recently?
Is there any Seasonality reflected in the price movement?
Do you see one or more moving averages acting as S&R?
Print out these charts and save them with the article.
What happens immediately following their recommendation?
Later, when one of these guys restates the case
for a particular stock, do you see a sizable price movement?
By the way, Dorfman lists his selections but fails to
include the symbols.
I guess he doesn’t have the time to provide the symbols…
or maybe he wants people to get into the swing of
researching the fundamentals by starting with finding the symbols.
In any case, here’s his list of ’06 favorites…
including the symbols.
Devon Energy DVN
Pogo Producing PPP (Yeah, Pogo is their real name)
Commercial Metals CMC
Schnitzer Steel Industries SCHN
Sanderson Farms SAFM
Alliant Techsystems ATK
New York Times NYT (Wait till you see this chart!)
United Online UNTD
Mercury General MCY
Lincoln Electric Holdings LECO
It might be fun to track these. In the past, I’ve
shorted several recommended stocks.
I’ve watched them rise, stall and start to slide.
I get short on the slide.
But, of course, it depends upon where support lies.
Have a happy and prosperous trading in the New Year |
