Hi Scott: I'll try to answer your questions about how a stock ends up on my radar screen.
As you probably know, I don't have a large list of stocks that I seriously watch. I'll usually be invested in call options on 3, maybe 4, and have on my radar screen only 2 or 3 that I'm watching. I am not looking for a home run all the time. As an options investor, I can get great returns if I simply make a quality decision on the front end, and pick an above average mover. Consequently, I am not chasing a bunch of high fliers all the time, resulting in me changing stocks. Instead, I'll just let them pass by. If I stray from my focus on those select few that's on my radar screen, so to speak, then I don't do as well.
While I only focus on a select few, that does not mean I am not searching and studying others. I am a prolific reader. I study this stuff all the time. It consumes an enormous amount of time. I firmly believe that the hard work pays off. I'll look at charts, although I won't TA something to the point that I square root it to death. I tend to like channel charting. I usually go back about 2 months is all. I like established upward trend. I won't say momentum per se, just a confirmed upward trend. Sometimes I will watch a stock for a month before I enter. That entire month it may have gone up, yet I wasn't ready. I tend to wait. Again, I believe in making a quality decision on the front end. When I decide to invest in a stock, it usually stays on my list for awhile, and is hard to bump off. Like I've said before, once I start accumulating call options on one, I tend to take substantial positions and will churn a portion of that position on a routine basis, usually every 5-10 days. That is why I like to stay focused on a small number that I don't change unless warranted. I learn them like the back of my hand so I can anticipate their reaction to the market. I do not consider moving averages.
I do what you might call true due diligence on financials of a company only on a limited basis, actually just enough digging into a company's financials to confirm a bona fide reason for its upward trend, its chart. With my style, I don't even look at the PE. Don't need to. I play growth, momentum hopefully, and when it poops out, I'm gone. I'll close that position out quickly. I don't fall in love with any stocks, even JDSU.
I'll tend to look at sectors. Now that is critical. This is a tool I've used for years. Find those stocks in the hot sectors, i.e. fiber optics.
Now what will make one actually get on my list is warranted by a combination of everything I've just said. Primarily, I think a key factor is the large amount of time, reading, and studying I do to pick what I hope is a jewel. I've been looking at CIEN for a long time. It's a fiber play. I keep up with it fairly regularly, but, it's not on my radar screen. Last night, instead of watching that survivor show, I was studying a call option chain for CIEN and wondering about the 5,475 call options someone bought that day, in a single day for Jan 200 calls. That's $19.7 million of options. Hum, makes me wonder. I will often study option chains on some stocks. Print them out, then compare with a week later, and look at the change.
So, bottom line, I guess that to make it on my radar screen, it has to be a stock that:
1. I've read about extensively and studied for several weeks and found it has a solid story behind it
2. Has the potential for an upward trend for the foreseeable future, at least a year
3. Is in a favorable sector at that time
4. Has a chart with an upward channel presented, usually for about two months, maybe 4-6 weeks if it has a breakout with volume (the channel is a great way to judge entry for me)
5. I like the options activity, usually indicated by increased call buying, or huge positions being taken, like that CIEN example I gave earlier.
When it is on my radar screen, I then watch it daily. I will pay particular attention to news on the company, judge how it reacts to that news, good and bad, judge how it reacts to the market, up and down, and then when the time is right, may enter a position. Just because it is one of my few on the radar screen doesn't mean I will take a position in it.
Basically, my style is simple and, as you said once, very methodical. I am a firm believer in constantly studying, constantly looking, because that makes the difference in making a quality and smart decision I think, or at least that's what I have found. That is why I joke on here sometimes when I ask if everyone is studying. I am a believer in working hard at finding those deals to give me a good return on my investment. It's not easy as you know.
I didn't mean to ramble, Scott, but that's the best I could do to answer your questions. Let me know if you have a follow up question. I'm typed out.
RR |
