Budmirer's Blog…

I have started investing in stocks from April of 2009. I suffered a lot of setbacks during my initial investing stages. The following are the mistakes I think I had done during my initial stages :

1)  I picked my stocks by my what my heart said and not through thought, just like everyone buying Citigroup or Bank of America stocks, hoping that they would increase, rather than thoroughly analysing the company’s stand and analysts’ opinion.

2) I never chose the right time and right price to buy the stocks. I used to buy when everyone was buying (when the price will be very high) and sell when everyone used to sell (when the sale price I get will be very low), thereby decreasing my profits.

3) I picked large-cap stocks and  it is very difficult to see considerable gains in large-cap stocks.

After going through an introspection of myself and my emotions during the buying and selling process, I realized that I am not acting rightly and things have to be drastically changed in order to maximize my gains. That’s when I started controlling my heart and putting my mind into work. I have kind of mastered it to some extent, but not all.  Yet, I am still striving for perfecting my strategy. Coming to my strategy, here it is :

I pick :

1)  Only small-cap stocks, below $5 or $10 max. (That is where you can maximize your gains)

2) Analyst most liked stocks and those that have higher price targets set by the analysts

3) Stocks that are consensually agreed upon from all the websites like Reuters, Fool, AOL Finance and Schaeffers where analysts are advising to buy the stocks.

4) Stocks with Positive Earnings surprises for the last two quarters (meaning they exceeded the expectations of analysts in profits)

I buy :

1)  When the price of the stock is at the lowest of the 20-day moving average or still lower. (This price will be reached when the market gets some bad news and all stocks fall down without any news on the stock).

2) When everyone in the stock market is selling..that’s when you could get hell of a bargain for the stocks that you pick.

3) Only when the stock reaches the price I have set.

I sell :

1)  When the stock market goes for a rally and when everyone is buying. Since my stock picks are safer and which have great value, people will start buying more into value stocks whenever there is an uptread after a downtrend.

Here are the resources that I use for this purpose :

1) I go to the website  http://www.schaeffersresearch.com/ and go to Schaeffer’s Stock Screener at almost the bottom of the page, select the option: Analyst most liked stocks and click on Go. This takes me to step 2 in the Screener where I leave the default options and then proceed to step 3 where I select the following options : a) Closing Price b)  Analyst ratings % Buy c) 20-day moving average d)  50-day moving average and click on get results.

In the results that are obtained, I sort by Closing Price, the one with lowest first.  Browsing through the stocks now from the first stock, I choose the ones that have %Buy = 100 and I note them down aside.

2) I will check the following for the stocks that I picked in step 1 :

a) Reuters : Buy/Strong Buy Analysts Recommendations

b) Finance.aol.com : Buy/Strong Buy Analyst recommendations, price target that was set recently, estimated eps vs actual eps and positive surprises for the last two quarters (in section – actuals and estimates)

c) caps.fool.com : The stocks should have 5-star rating here, which means they belong to the category of value investing.

d) Acharta.com : For the 20-day moving average price of the stock

3) Based on all the factors above, I will pick the right stocks that meet all my criteria and buy them when they are really down , without any market news on the company which makes them a real bargain.

4) Then, I sell when the market is really on uptrend, thereby maximizing my gains.

Principles to follow for being a good investor :

1)  Invest with thought, not with heart

2) Be patient, market is always fluctuating : When you have made the right picks, all you need to do is wait patiently and not to worry.

3) Just like you look for good deals when shopping for clothes, look for good deals when shopping on stocks.

4) Don’t be greedy.

About my portfolio, I have almost doubled my investment from April by the start of October 2009, despite making some bad moves and facing some losses. Now, I have invested the total again and will wait for sometime to see the expected gains.