My approach won't be for many but I feel it will keep you alive and finish each year with a decent gain.
Make money and make it regularly
If this isn't occurring, then it's time to reassess and analyse your approach. If your positions aren't going green over a couple of months, something is wrong.
Keep up to date with everything
This means each report issued, read the summary or the actual report for 5 mins, have a quick look at the figures and the next update date. Stick it in your watchlist or in the diary.
Don't do the 1 x position ‘Wonder trade‘
This means don't pile in £2k, £3k, £4K, £5k or £10k in 1 x position...why? Because odds on it's the wrong price and it's too soon. Stream your positions to protect against movement against you. Buy a strong company in stages of weakness i.e. -5%, -10%, -15% etc. Then either sell in lumps as it moves up or just wait til overall the positions are green or just wait for the next trading update and decide if the momentum is strong.
Keep chilled and relaxed. Don't be listening to all these financial wiz kids and professionals. They have no idea I've found. The opposite of their opinion is normally a more accurate barometer.
Deciding to sell
Don't sell when share price dips -10% for no reason. Don't be scared out and it's easy to be scared when you’re in too heavy and in a single position. I find I sell when I want to realise 5%, 10% or above or when the next trading update looks flat or weak. I don't really believe in a stop loss sharper than -20% than entry.
Deciding to buy
I think buy when you see EPS growth, profit growth, flattish line in share price (2 months), RNS due in 6 weeks or so and debt /cash is healthy. This I've found is a good simple approach rather than reviewing all the charts, MA, level 2 and all that technical crap. Buy a lump, wait, and then buy some more on weakness and continue up to RNS. If the RNS is poor, dump the lot and move on. Don't be hanging on to a share and listening to folk on the hidden values.
Don't get confident
Keep eye on the ball, that's future RNS statements in diary, when it goes ex-dividend and any change in the industry. ‘Pride before the fall‘, so keep eye on the data and not loving one’s own hype.
Trade what you understand
Simple things make money. Try not to get engulfed in an AIM miner at 4p with a huge following on internet boards and awaiting the next RNS. It's hard to understand real value.
Check the market regular
Keep eye on your watchlist, what's up and down. If something is down and it's decent and no real reason...then add.
Things not to do...
Its dangerous and when your incorrect it hurts and damages confidence. Little positions frequently built up over time is far less risky and more fruitful.
Don't buy in positions too close to each other
It's same as buying heavy. Don't be tempted to buy near previous price - let it get -5% from previous price if you’re going to add.
Don't spread bet a 6000 pointer
The spread betting platform may say buy at min of £1 per point and it's a 6000 point company. Forget it, if it dips 10% then you are £600 down and have to add etc., and it's going to be painful and unbalance your portfolio.
Spread 5% or above
Don't bother with it - too expensive especially when things not good (spread could increase to 10%+).
Buy profit warners or serial profit warners
They drop and then continue to drop over weeks. Yes there are times when a marginal miss or ‘inline with expectations’ RNS can cause a fall in share price - these are worth buying if it has all essential ingredients.
Romancing the share
Trading and investment requires patience but needs to be outcome based over a timeframe. If it's not happening, dump and adapt your methods. Talking and romancing about a share’s potential is limited and best to focus on opportunities only.
Crap is dwindling eps over the quarters, high debt, low cash, (PE can be 50+ but it's got to back it up in eps growth regularly). If any of these items are there then just delete it.
If a share dips on a director selling a lump of shares or a new technology being released or a blog is dismissive of a share, don't automatically get scared and cash out. Ask yourself:
- have the fundamentals changed?
- will the eps be less this quarter?
If Answer is ‘no’, then buy a few more and wait for next RNS.
Buy non profit makers
For me they are vulnerable and weak. If the environment changes and things slow down then can they survive? Therefore just not worth getting involved with.
Sit on the fence
Don't research, look at it, research, watch it move up, then wait, then wait for a dip, it moves up some more, then wait for RNS, then it rises 20%...
Like it then buy it. Small position and then build over time. If you’re wrong and the RNS is poor, then sell and move on.
Nothing will happen if you don't engage. I view the markets as a train, the more trains you have running better chances of an overall good return. Yes some may crash or stall but overall you can't afford to not engage.
A good saying: “nothing is ideal and best to make something of today than wait for perfection“.
The share price may not be ideal, the share may not be ideal, but over time if the fundamentals are good, it will continue to ascend upwards.
Be weak when the going gets tough
It's easy to doubt when everything seems to be collapsing and coming apart and you just want to bail out. Ensuring the fundamentals have not changed especially short term in this quarter, best to reduce some positions by a small amount and hold.
Over time add a little in the weakness. After 6 months you will be back in the green. If you get scared and close all for a fat loss.…..in 6 months you will see it's all higher than that day of hiding under the table.
I used to be anti diversity and preferred 3 to 4 positions at high value. What a fool I was, this is because when negative days occur, you’re high and dry and no money to add and average your price in a stock.
Also I was wrong thinking I can rely on 3 or 4 correct selections. I prefer 20 shares and circa 3 to 4 positions in a single share. This allows constant catches in profits that can be cashed or held and then this can be re invested. There is more chance of an overall gain using 20 x shares than only 3 or 4.
My personal opinion is you can't have enough cash in market but it cannot be at single positions. Best to correlate positions and correlate across a number of shares.
My personal return in 2017 is 12% at present and that's been pulled out and re invested. My approach isn't normal and I believe in frequent returns. That's because a share can jump up 10% then drift down then up again etc. and the frequent return approach harvest each jump and re position when there is a weaker day.
In a month a share could jump up to resistance level and return 2 or 3 times and a nice 5% to 10% can be harvested 2 to 3 times. That's 15% to 30% in a month. Track 20 x shares and this racks up.
If there is no jumps in price then just jump aboard the long term trader boat and await the RNS.
Good luck to you all in your trading,
Kind regards, James @traderdiarycouk