Question:
I have a few questions about short term trading, where the speculator holds the stock anywhere from several days to a month. Currently, I am using what I call an "optimist" strategy. I search on Yahoo Finance for companies that register a considerable drop because of lackluster earnings reports, failed drug trials, unfavorable news, etc. Generally, the price drops anywhere from 15-30%.
Of these companies, I try to pinpoint whether the value has dropped too far and should bounce back, whether by looking at the key statistics or by looking at previous all time lows. The first time I used this strategy, I netted about 27% in 3 weeks. However, currently, it has been going nowhere. Is this a good strategy? Are there any improvements that can be made to augment it so that it is more reliable?
Answer:
Regarding your first question, it is a good strategy to observe if stocks that have been hammered are going to bounce back right away. However, you cannot employ this strategy effectively if the company isn't a quality company to begin with. This means the company needs to have an established track record of getting through tough times. If no history has been established then it would be difficult to get value investors and others to jump in at the new low price. A history of over 30 years is ideal.
To improve your observations on this strategy, I would concentrate on the companies that are the top 100 of the Nasdaq and S&P 500 indexes. The reason for this is because almost all mutual funds have to buy the top 100 of the respective index. Do not bother with companies 101 and lower. Only the top 100 from each. This will make your observations easier.
Question:
My second question is trend analysis. Is it good to, essentially, follow the lemmings? I'm going to use Google as an example. In the past 2-3 months Google's stock price has been increasing like clockwork at a rate of about $50/month because of stellar earnings and profit reports. However, I am worried that Google is rising too quickly and will eventually burst. Would it be advisable to jump in and ride the wave, even though the stock price may become unstable?
Answer:
Regarding your second question, I don't think you need to follow the lemmings especially when you know you're following lemmings. Few people are able to identify lemmings when they see or hear them. If you have that ability, then always avoid taking the path of lemmings.
I looked up GOOG and found that it is up only 131% from the low. Contrast this with the 20+ companies that are part of my Dividend Achievers list which range from 138% to 414% above their respective low. Remember, these companies are considered the most conservative and have had a history of paying their shareholders for the time that they hold the stock, something that GOOG doesn't do at all.
GOOG is popular now but it will be a "has been" before you know it. Everyone, I mean everyone, has a target on Google and want to take over their market share. However, ask yourself this, "how many college students are trying to take out Nordstrom's department store?" Nobody. Despite this fact, Nordstrom's stock has increased 414% since November 21, 2008.
Question:
I have been trying to find markets with a lot of short term volatility, with large jumps or falls within a period of weeks. What markets would exhibit these characteristics.
Answer:
In answer to your last question, the market with the most short term volatility is the stock market. It's just a matter of which stocks to observe. Personally, I would be satisfied if I could get 3% in 3 months. As long as that 3% is on 50% of my portfolio and CDs (certificates of deposit) are yielding less than 6% annually.
Thanks for the questions and keep them coming.
I have a few questions about short term trading, where the speculator holds the stock anywhere from several days to a month. Currently, I am using what I call an "optimist" strategy. I search on Yahoo Finance for companies that register a considerable drop because of lackluster earnings reports, failed drug trials, unfavorable news, etc. Generally, the price drops anywhere from 15-30%.
Of these companies, I try to pinpoint whether the value has dropped too far and should bounce back, whether by looking at the key statistics or by looking at previous all time lows. The first time I used this strategy, I netted about 27% in 3 weeks. However, currently, it has been going nowhere. Is this a good strategy? Are there any improvements that can be made to augment it so that it is more reliable?
Answer:
Regarding your first question, it is a good strategy to observe if stocks that have been hammered are going to bounce back right away. However, you cannot employ this strategy effectively if the company isn't a quality company to begin with. This means the company needs to have an established track record of getting through tough times. If no history has been established then it would be difficult to get value investors and others to jump in at the new low price. A history of over 30 years is ideal.
To improve your observations on this strategy, I would concentrate on the companies that are the top 100 of the Nasdaq and S&P 500 indexes. The reason for this is because almost all mutual funds have to buy the top 100 of the respective index. Do not bother with companies 101 and lower. Only the top 100 from each. This will make your observations easier.
Question:
My second question is trend analysis. Is it good to, essentially, follow the lemmings? I'm going to use Google as an example. In the past 2-3 months Google's stock price has been increasing like clockwork at a rate of about $50/month because of stellar earnings and profit reports. However, I am worried that Google is rising too quickly and will eventually burst. Would it be advisable to jump in and ride the wave, even though the stock price may become unstable?
Answer:
Regarding your second question, I don't think you need to follow the lemmings especially when you know you're following lemmings. Few people are able to identify lemmings when they see or hear them. If you have that ability, then always avoid taking the path of lemmings.
I looked up GOOG and found that it is up only 131% from the low. Contrast this with the 20+ companies that are part of my Dividend Achievers list which range from 138% to 414% above their respective low. Remember, these companies are considered the most conservative and have had a history of paying their shareholders for the time that they hold the stock, something that GOOG doesn't do at all.
GOOG is popular now but it will be a "has been" before you know it. Everyone, I mean everyone, has a target on Google and want to take over their market share. However, ask yourself this, "how many college students are trying to take out Nordstrom's department store?" Nobody. Despite this fact, Nordstrom's stock has increased 414% since November 21, 2008.
Question:
I have been trying to find markets with a lot of short term volatility, with large jumps or falls within a period of weeks. What markets would exhibit these characteristics.
Answer:
In answer to your last question, the market with the most short term volatility is the stock market. It's just a matter of which stocks to observe. Personally, I would be satisfied if I could get 3% in 3 months. As long as that 3% is on 50% of my portfolio and CDs (certificates of deposit) are yielding less than 6% annually.
Thanks for the questions and keep them coming.
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