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Stock Picks Bob's Advice
Monday, 24 December 2007
A Reader Writes "Please keep going over your reasons...."

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

A while back Bob G. wrote and suggested "stick to what you know."  While not exactly following his advice, he wrote intelligent suggestions regarding being careful about plunging into new venture, whether it be trading stocks, or trading pork bellies, and to prepare and educate yourself before rashly losing your money.  I could not disagree with him even in the slightest.  He was kind enough to write again and tone down his criticism (it wasn't necessary) and I would like to share with you (I hope that's o.k. Bob) his email:

"Hi Bob,

    I think your blog is terrific and most certainly not boring. Please keep going over your reasons for buying and selling. It's a great help and a surefire learning process for your readers. In my last email I suggested you stop trading and keep investing and I thought afterwards that I was a little too harsh in my statements.
 
You are doing great and obviously have a good feel for the markets. Keep putting your toes in the water but don't go above the knee, so to speak. I was wondering if you ever tried to figure out how much of your return is from the market itself moving and how much is from the actual stock picking.
 
If you look at your graph, and say drop off the first few trades, thus starting later, would you still be ahead of the market or just have market returns (Beta vs alpha)? The reason I ask, is that a way to furthur develop your stockpicking might be to only buy (or trade) when the market is going up. How do you determine when the market is going up? That becomes another problem. Since you like P&F charts, it might be when there is a column of X's on the S&P 500 chart or whatever you feel comfortable with. (Moving averages of the S&P, price above or one ma above another ma etc).
Anyway I just wanted to thank you and wish you and yours a Happy Holiday Season.
 

Bob G."

Thanks so much for writing again Bob!  I have heard your same comments from other readers who have advised me to consider charts before plunging into investments--especially for the short-term.  I shall try to look harder at these graphs before diving into a trade in the future.

I am not sure whether my performance would look good if I took off my first couple of trades (the acquisitions of CYTC and VMSI) from my record.  I do think I was rather lucky with them.  However, I do believe that having two stocks acquired out of your portfolio may well mean that my selection process was similar to the acquiring companies---that is they also recognized a superb company and just wanted to own ALL of the shares instead of the handful that I owned as an amateur investor.

You write about only buying when the stock market is moving higher.  I do think the suggestion of using point and figure charts on the S&P or Dow might be helpful.  But I haven't ignored this point.  

One of the biggest failures of mine in the past has been to be making acquisitions when the market was turning against me.  Currently I use my own portfolio as a signal for the appropriate time to be buying or selling stocks.  That is, when a stock is sold on bad news (a decline or some other fundamental problem), I sit on my hands with the proceeds and do not have permission to be buying a new position to replace it.  If you note my recent sale of my remaining shares of SNCR, I stated it was because I didn't have the 'signal' to be buying a new position.

That signal is also generated by my portfolio in terms of a partial sale of one of my holdings on an appreciation target reached.  These sales on appreciation are my 'good news' signals that give me the permission, so to speak, to add a new holding assuming I am below my maximum of 20.  Currently I allow my portfolio to drift between 5 positions (the minimum) and 20 positions (the maximum).  

In the extreme cases (I don't believe I have faced these situations), if a stock hits an appreciation target and I sell a portion, which usually generates a 'buy signal', I plan on 'sitting on my hands' and avoiding any new purchase if I am already fully invested--with 20 positions.  On the other hand, if I am at my minimum and I sell on bad news, instead of sitting on my hands, this would generate a buy signal and I would look for a new stock to own--as long as it met my requirements.

Thanks again for writing!  I enjoyed your critique and it is ok to pan any of my decisions and suggest improvements.  Just because I have a blog doesn't make me an expert.  

Have a very Happy Holiday Season!   And again, thanks for writing.

Bob 

 


Posted by bobsadviceforstocks at 1:13 PM CST | Post Comment | Permalink

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