Condition of the market!
As I mature as an investor, I find that the more I adjust my strategies, as market conditions warrant, the better my results have become.
During the bear market of the past two years, I played the low cost stocks that had taken huge hits. Fundamentals didn't mean anything because stocks with good fundamentals were falling too. I found that speculating in stocks like PVN, RAD, DDS, PGO and RRI brought returns in excess of 100% each, in a very short time. I think the maximum time was 3 months on any of them.
Chasing laggards in the current market conditions won't bring the same results, in my opinion. Since we are in the early stages of an economic recovery, I think stocks with good fundamentals, (increased earnings and sales), and worked in conjunction with TA will provide the better returns.
The change in strategy has brought some very quick profits. The strategy will work as long as the market trends higher. If we start to see a pull back, the strategy will change.
I'm currently buying stocks near 52 week highs and in most cases are breaking out. I submitted a list of my selections last weekend to a friend, so he could monitor the results. (We are working together and sharing ideas.)
I had picked 8 selections and this is more than I like to play. I'm going to cut the number back this week. Of the 8, 7 were winners with one up over 20% on the week, another up over 15%, another up 9%. Only two of the 8 finished with a profit under 5% on the week.
Buying strength while the market is trending higher is a concept that has been around for a long time but, most people are afraid to apply it. If one were to stop and think about it a minute, it only makes sense that it would work.
If we were managing a baseball team and we needed to send a pinch hitter up to the plate, would we pick our strongest hitter, or a laggard?
As we approach a level of resistance in the overall market, we could see it pull back and profits would need to be protected. If the market breaks out, then buying the strongest stocks in the strongest sectors should provide the best opportunities for "high probability" trades.
Most people use the same strategy regardless of market conditions. If one is going to outperform the market on a consistent basis, one needs to adjust their strategies. The reason 80% of fund managers don't outperform the S&P is because they aren't allowed to change their investing strategy. Their charters state they can only invest in certain stocks that meet certain criteria. They aren't allowed to adjust to the condition of the market. They have to hold their nose and wait for the market to turn around. So, they pick a style they think will be successful over the long haul.
That's why I think it's important to understand different styles and know how to apply them. We can adjust. We can outperform most fund managers and even outperform ourselves, for that matter, if we learn to read the condition of the market and adjust as those conditions warrant.
Buying low and selling high has a whole new meaning to me. Are we to buy low based on recent history, past history or base it on future results?
If a stock is to increase 1000% over time, a 25% rate of growth may seem too high, based on where it developed in the trend. We might wait for it to pull back and it never does.
I remember sharing PVN as a good technical selection, here on this thread. At the time it had increased 60% from my entry point. Most thought it was too high. It has now gone up about 300%. At what point is a low price relative?
Since we're in the early stages of an economic recovery, I don't think any of the better performing stocks are priced too high based on where they can go. Everything is relative, I would suppose.
dabum |
