Over the years, I’ve written (and read!) about all sorts of different investment styles. Here on StockIdeas.org, you can find blog posts and videos about everything from buy-and-hold value investing, to day trading penny stocks.
But even after all this, I haven’t made it clear what my own investing style is.
So are you curious?
Consistent with my recent post about my own journey to financial independence, I wanted to share some information about my own investing style.
My Stock Picking and Investment Strategy Explained:
As you undoubtedly know, there are a myriad ways to approach the market. And everyone has their own style when it comes to grinding out a profit. For me, it’s about putting the odds on my favour in both the short and long term.
So how do I do it?
First, everything I do is grounded in a value investing methodology. I like buying bargains, and stocks that are selling at a discount to a conservative estimate of intrinsic value may offer a valuation tailwind. In this way, Security Analysis and The Intelligent Investor were big influences on my thinking. But I’m not just looking for any old cigar butt.
That’s because quality counts. As explained in the book The New Buffettology (and The Warren Buffett Way), companies that can compound capital over the long term make very appealing investments. So I’m also focused on finding quality companies. In fact, I have a database of over 300 of just these kind of stocks. And I’m always making additions and subtractions.
But I don’t stop there.
That’s because after years of trying to bottom-fish stocks trading at 52 week lows, I’ve found that a little technical analysis can go a long way. Books like Secrets for Profiting in Bull and Bear Markets convinced me that a few technical filters can go a long way. The results have paid for themselves.
To that end, I try to buy high quality companies, at or below my estimate of intrinsic value, and I only do so if the stocks are making higher highs and higher lows. It’s one of the most often quoted pieces of trading advice, but I must admit that the trend has been my friend.
Technical analysis also helps with risk management. I use stop losses because I don’t like to see my capital tied up in losing or languishing stocks.
And finally, I’ve relied on books like Trading in the Zone and What I Learned Losing a Million Dollars. These focus on the psychological side of money management. Sticking to your plan can be easier said than done.
Now, I could go deeper. But there’s no sense bogging you down in the details. So I hope this overview provides you with a bit of context for the content on this blog, and how I’m investing in my own stock ideas.
By the way, while my investing strategy evolves incrementally, it’s been the same for a long time. I improve one sprint at a time in a very methodical way. A lot of trading and investing results come down to the mathematics of positive expectancy. And once you have that done, it’s just about maximizing your edge and profits. Make sense?
But now I want to hear from you. What’s your process for picking stocks?