Investing Tactics?

Question

Are there any relatively reliable investing patterns or tactics? Simple rules of thumb to help in deciding what stocks to purchase? For instance is a stock trading at near the 52 week low a good idea? Thank You

Answer 1

The best strategy I have found is to buy for the long run. Buy Quality growth stocks and hold them. Use the power of compounding.
This information comes from NAIC. The web site is www.betterinvesting.org.
They also have the tools and training to help you along.

Answer 2

If you want just a single rule of thumb, I would say buy stocks selling at low P/E multiples that have reasonable growth prospects. The difficulty in applying this rule, of course, is in determining how "reasonable" the growth prospects really are.

I don't like the concept of buying a stock simply because it is near its 52 week low. Take American Home Mortgage as an ugly counterexample. Applying the 52 week low criterion, you might have bought it at $20 on July 7, only to see it plunge to about $1 by the end of the month. Does that mean you should buy it today at about $1.50? Probably not. Word is that the company may go bankrupt, in which case your shares would most likely be completely worthless.

Answer 3

If you are a beginner, you should start with mutual funds. There is a lot of free, general advice on this at Morningstar.com and other sites. Either sign up for their premium service for a month and read like crazy on specific funds, or use the general advice and pick a couple of large growth and value funds with 4 or 5 star ratings.

If you are branching out from mutual funds to stocks, then the guy who looks at P/E ratios and long-term growth has it right.

Answer 4

1. Before you buy stock in a company, understand exactly what they do. Sounds like common sense but many people get caught up in fad tech stocks even know they have no idea what the company does.
2. Have three good reasons to buy a stock.
3. If you realize your stock is a loser, SELL IT. Many people pray and hope the stock will be rebound.

I like to find successful companies that have been unfairly beaten down. All these have worked pretty well for me. (Its not my theory, see Warren Buffet for more)

Good Luck!

Answer 5

Yes, there are.

Buying breakouts among stocks near their 52 week high. You can find the details here:

http://finance.groups.yahoo.com/group/TradingZoom/

Answer 6

Sure. Buy low cost index funds and diversify according to your risk tolerance and stay the course no matter what for 30 - 40 years.

Your returns will beat about 90% of people who trade in stocks, time the market, chase past returns, use financial advisors (brokers). If you start doing this in your 20's, you'll be able to retire in your 40's or 50's. I did.

"Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement."
William F. Sharpe, Nobel Laureate in Economics, 1990

"The results of this study are not good news for investors who purchase actively managed mutual funds. No investment style generates positive abnormal returns over the 1965-1998 sample period. The sample includes 4,686 funds covering 26,564 fund-years."
Davis, James L.

"The deeper one delves, the worse things look for actively managed funds."
Bernstein, William

"[Most investors would] be better off in an index fund."
Peter Lynch

"..the best way to own common stocks is through an index fund..."
Buffet, Warren

"Most of the mutual fund investments I have are index funds, approximately 75%."
Charles R. Schwab

"The road to financial perdition begins with a call to your broker who claims to be able to 'beat the markets.'"
Daniel R. Solin

"This message (that attempting to beat the market is futile) can never be sold on Wall Street because it is in effect telling stock analysts to drop dead."
Paul Samuelson, Ph.D., Nobel Prize laureate

"Q. So investors shouldn't delude themselves about beating the market? A. "They're just not going to do it. It's just not going to happen."
Daniel Kahneman, Nobel Laureate in Economics, 2002

“If there's 10,000 people looking at the stocks and trying to pick winners, one in 10,000 is going to score, by chance alone, a great coup, and that's all that's going on. It's a game, it's a chance operation, and people think they are doing something purposeful... but they're really not.”
Miller, Merton Nobel Laureate and Professor of Economics, Univ. of Chicago

"It's just not true that you can't beat the market. Every year about one-third of the fund managers do it. Of course, each year it is a different group."
Stovall, Robert , Investment Manager

"After taking risk into account, do more managers than you'd see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding "no." Mike Jensen in the Sixties and Mark Carhart in the Nineties both conducted exhaustive studies of professional investors. They each conclude that in general, a manager's fee, and not his skill, plays the biggest role in performance."
Fama, Jr, Eugene, DFA

"99% of fund managers demonstrate no evidence of skill whatsoever."
Bernstein, William

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what`s going to happen to the stock market."
Benjamin Graham, Legendary investor and author

"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor - the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
Bernstein, William

"By day we write about "Six Funds to Buy NOW!"... By night, we invest in sensible index funds. Unfortunately, pro-index fund stories don't sell magazines."
Anonymous Fortune Magazine Writer

"Why does indexing outmaneuver the best minds on Wall Street? Paradoxically, it is because the best and brightest in the financial community have made the stock market very efficient. When information arises about individual stocks or the market as a whole, it gets reflected in stock prices without delay, making one stock as reasonably priced as another. Active managers who frequently shift from security to security actually detract from performance [compared to an index fund] by incurring transaction costs."
Burton G. Malkiel, author of A Random Walk Down Wall Street

"IN THE STOCK MARKET (as in much of life), the beginning of wisdom is admitting your ignorance. One of the many things you cannot know about stocks is exactly when they will up or go down. Over the long term, stocks generally rise at a nice pace. History shows they double in value every seven years or so. But in the short term, stocks are just plain wild. Over periods of days, weeks and months, no one has any idea what they will do. Still, nearly all investors think they are smart enough to divine such short-term movements. This hubris frequently gets them into trouble."
James K. Glassman, Co-Author of Dow 36,000

"All the time and effort people devote to picking the right fund, the hot hand, the great manager have, in most cases, led to no advantage." and "Most individual investors would be better off in an index mutual fund."
Peter Lynch

"Contrary to their oft articulated goal of outperforming the market averages, investment managers are not beating the market; the market is beating them."
Charles D. Ellis