My Stock Trading Rules?

Question

All the stocks that I have now are Dow Jone Stocks. I will pick few from S&P 500 soon. I drafted my own trading rules, do we have any expert here to give me some input? I use a number system to determine what stock to buy.

General:
1. Have Dividend 1-3% (+1)
2. Have Dividend 3-6% (+2)
3. Have Dividend 6% or more (+3)
4. Random Dividend (-1)
5. Total Cash 0-1% of the Market Capital (+1)
6. Total Cash 2% or more of the Market Capital(+2)
7. Total Debt 0-2% of the Market Capital (-1)
8. Total Debt 2% or more of the Market Capital(-5)
3. Market Capital at least 1 Billion (+1)
4. Market Capital at least 10 Billion (+2)
5. Market Capital at least 50 Billion (+3)
6. P/E 10-15 (+1)
7. P/E Less than 10 (+2)
8. P/E Less than 5 (+3)
9. P/E 20-30 (-1)
10. P/E 30 or more (-5)

Buy Time:
Objective: Lower Cost
1. 0-5% below 52 weeks average (+1)
2. 5-10% below 52 weeks average (+2)
3. 10% or more below 52 weeks average (+3)
4. 5 - 10% above 52 weeks average (-1)
5. 10% or more above 52 weeks average (-5)
Sell Time:
Objective: Beat S&P 500, 10% annual return rate
1. 3 Month 5%
2. 6 Month 10%
3. 9 Month 15%
4. 12 Month 20%

Answer 1

I think at best it only tackles half the problem of investing. Your list takes care of the FUNDAMENTALS of a stock, but nothing about the TECHNICALS (price movement).

You could buy a stock that scored all "+3's" but if institutions and hedge funds have decided to sell out your sector (such as oil the past month) then you're still screwed. You need to start learning technical analysis and find when a sector is in an "oversold" position and catch it right before it is about to cycle in as being "hot" again.

But you at least have a good system to filter out stocks that are fundamentally crap. :)

Answer 2

According to "What works on Wall Street" by James O'Shaughnessy the best performing stocks are small/middle cap growth stocks that show strength and are not too expensive yet. You select approximately the opposite by asking for big caps, high dividends and no debt.
Too give an example: would you prefer to buy Microsoft *now* when they are big and paying dividends or 20 years ago when they where small and growing fast?

Did you test your rules? You should.

Answer 3

I don't like it and here is why. You are focused on large cap high dividend stocks and some of those stocks that have that high of a dividend typically mens they do not have any room to grow and is stagnanat. (or one helluva of a utility or bank play) selecting these stocks severly limits you on where to invest as well. Having debit is not necessarly a bad thing which a lot of businnesses (especially retail) operates on debit. You need to spread it around a bit take some risks

Answer 4

The only thing I'm not so crazy about is your market cap rules. Your system gives the same weight to a large-cap as it does to one with PE<5 . I would give much greater weight to PE<5 than market cap>$50B .

Answer 5

KISS (Keep it simple stupid). That is way too complex. There are systems that can do all of that with the touch of a button, they are called mutual funds. The only way you are going to make any money with that system buying individual stocks is that you have to have a lot of money to start and you can pay no commissions.

Answer 6

I like those rule. You should look at potential growth rate as well