Written and copyright © 2009-2013 by Thomas N. Bulkowski. All rights reserved.
Picking Stocks Introduction
I have written on these pages that it's not important when you buy a stock. What's important is when you sell. Hold too long and you'll lose your shirt. Sell too soon and you may miss
the move you have been waiting for.
You may have seen it written in magazines or books that traders and investors spend too much of their time searching for stocks to buy and not
enough time on those to sell. That's true. It's probably also true that you spend more fussing about the features in a new dishwasher, or refrigerator but you'll spend thousands or
tens of thousands just by looking at squiggles on a chart for fifteen minutes.
Having written all of that, I am not going to focus on when to sell. Rather, I want to discuss picking stocks to buy. In the last few days, I have received two emails from
people asking just that question. "Send me some shopping tips." This is my answer to that request.
Picking Stocks: My Watch List
As you know, my shopping list appears on the website at the link (and also by clicking on the menu button at the top of this page, the location is circled in
red in the screen shot below). I show additions to the list, but not when they disappear. By reviewing my additions,
you can get some ideas about what I think is an industry or a stock worth looking at. Often, the stocks you see listed I throw away because something has caused me to cough up fur balls.
The coal industry is a recent example.
If you look at the coal stocks, you will see flat bases (use the linear scale and not the log price scale). When price breaks above that region, it's time to go shopping! Or is it?
I put a few coal stocks on the list and then pulled them off then months later I added them and then pulled them off yet again. The reason I pulled them off the list recently is due to changing
fundamentals. Technically they look great but the fundamental side is too weak to tempt me. Anyway, my stock picks is one place to look for ideas.
Picking Stocks: Test Portfolios
Another place is the test portfolios at the top of this page, shown in the screen shot to the right. I show four of them. They are not model portfolios but test portfolios --
personal experiments to see what works and what doesn't. If you are into mutual funds, I show two based on the best and worst performing funds. Testing revealed that selecting funds from
those extremes can lead to outsized profits. However, they trade every 7 to 9 months, so transactions are few so far. Plus, I happened to introduce them just as the bear market in 2008
But look at the Wilder RSI portfolio. The average gain so far in 2009 is 64.5%. What's not to like? Listen to some of these picks for this year: DOW up 181%, PMTI up 119.2%, FO up 106.8%,
PTV up 118.9%. Since January, just one stock picked this year remains in the red by just 6% (all of this info is as of 8/25/09). The huge performance numbers posted by this portfolio
reminds me of some of the ads that appear on my website. If you follow enough stocks and recommend them all, yes, you will have a handful of huge winners which you can broadcast to the world.
So what's wrong with this portfolio? Nothing except that it has forgotten when to sell. Only three stocks were sold since inception in January 2008. Yes, they made a handsome gain of
48%, but the draw downs can be downright frightening. Nevertheless, this portfolio seems to be a good place to shop for weak stocks destined to grow stronger. I have shopped from this
Picking Stocks: What's Hot Wednesday's
On What's Hot Wednesday's I show tables of securities that have gained and lost the most this year. It's based not on the overall market but on stocks I follow. Look at those posting
big gains. Think momentum investing. If the homebuilders are showing up on this list, then you know what industry to begin your search. If coal stocks appear on the biggest losers list,
then you'll know to either avoid buying them or maybe do some bottom fishing. Just remember that those near the yearly low are there for a reason, and they can and often do stay down
there for months, even years.
What scares novice traders and investors most is buying a stock that has move up already. Again, think momentum play. Dow is up 181% this year but it first had to make 20% then 30%
then 100% and so on to get where it is. If you climb aboard these rockets, you can ride them until the air is too thin to breathe. Don't bother with a parachute because the air is too
thin for it to work and you'll likely freeze to death before you touch down. Just keep your fingers glued to the ejection handle.
-- Thomas Bulkowski
Written and copyright © 2009-2013 by Thomas N. Bulkowski. All rights reserved. Experience is what causes a person to make new mistakes instead of old ones.