A Present for Your Portfolio
by Kevin MatrasDecember 24, 2010 | Comments : 0 Recommended this article: (0)
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There's nothing better than buying the perfect gift for someone.
While you're thinking about the special gifts you'll be giving to those in your life this holiday season, don't forget about your portfolio. It works for us 24/7, helping us achieve all of our financial goals.
Of course, your portfolio can't do it alone. All of those great ideas have to come from somewhere. And that somewhere is you.
The Gift That Keeps on Giving
Learning something new is fun. Getting good at it is both fun and rewarding. And when you become proficient at that new skill, the benefits start popping up in many areas of your life.
Knowledge is one of the greatest gifts one can receive. As they say, teach a man to fish and he feeds himself for a lifetime.
Learning how to become a better trader can provide a lifetime of success.
And getting started is easy.
3 Steps to Becoming a More Successful Trader
Let's go over the three key things that you can start doing today to become a more successful trader or investor.
The first step is to identify what kind of trader you are (or want to be).
So let's define what the four main fundamental trading styles are: Momentum, Aggressive Growth, Value and Growth & Income:
Momentum traders look to take advantage of upward trends (or downward trends) in a stock's prices or earnings. They believe that these stocks will continue to head in the same direction because of the momentum that is already behind them.
And there's a lot of evidence to support the idea that stocks making new highs have a tendency of making even higher highs. This style of trade will likely carry with it a higher degree of volatility.
- Aggressive Growth:
Aggressive Growth traders are primarily focused on stocks with aggressive earnings growth or revenue growth (or at least the potential for aggressive growth).
You'll often find smaller-cap stocks in this category. Expect volatility in this style as well.
Value investors and traders favor good stocks at great prices over great stocks at good prices. However, this does not mean they have to be cheap stocks in price. The key is the belief that they're undervalued. That they are, for some reason, trading under what their true value or potential really is. The value investor hopes to get in before the market 'discovers' this and moves higher.
The value investor will typically need to have a longer time horizon because if that stock has been undervalued, i.e., 'ignored' for a while, it may take a bit of time before that stock gets noticed and makes a move.
- Growth and Income:
Growth and Income investors and traders are looking for good companies with solid revenue that pay a good dividend. Often times these are more mature, larger-cap companies that generate solid revenue. These companies then pass that revenue along to their shareholders in the form of a dividend.
This kind on investor will also have a longer time horizon, especially since you'll want to hang onto your stocks long enough to receive the dividend.
The identification process also includes determining what you want your stocks to do for you. And what your goals are as a trader.
- Are you looking to make fast money by getting in and getting out quickly?
- Or are you looking to find long-term core holdings?
- Maybe you're somewhere in between.
- Is this for your retirement?
- Your kid's education?
- Will this supplement your income or completely replace it altogether?
Defining what kind of trader you are is the first step, and it's an important one. Because then you'll be able to find the stocks that are in alignment with who you are and your risk tolerance.
If you find yourself getting into stocks that are not in alignment with your style or beliefs, you'll find yourself dropping those stocks the moment the market hits a rough patch.
The second step is to analyze.
No, you don't have to turn yourself into an analyst.
But you do have to search for stocks and analyze which ones fit into your style above.
This is actually the easiest of the three steps. Because once you've identified what kind of trader you are, it's easy to find stocks with those types of characteristics.
Think about the last car you bought. Once you decided what kind of car you wanted, you probably saw them everywhere. They didn't just magically appear on the road. They were always there. You just became aware of them.
In short, once you know what you're looking for, it becomes easier to find. You know what you want. And you also know what you don't want.
This helps cut thru the clutter and frustration of finding the right stocks.
Even the staunchest of value investors might get sucked into buying a high-flying momentum stock with over-priced valuations once in a while. Maybe it's being hyped on TV or one of your friends is in it. But if you know what kinds of stocks are acceptable for you and your style of trade, you can avoid those pitfalls and follow your plan.
You might also want to look at some proven, profitable trading strategies specifically designed for a particular style. Whether you decide to trade them as a trading strategy or use them as a guide to find the right stocks, you'll be one step closer to becoming a better trader.
The third and last step is to manage your investments.
Manage my investments? I don't have the time!
Sure you do.
Your investments are probably the largest, most important chunk of money you'll ever be responsible for in your entire life.
Keeping track of your investments doesn't have to be difficult or time consuming. In fact, it shouldn't be. The more difficult something is, the less prone we are to do it.
You just need to know 'how' to manage your investments.
You can stay on top of your portfolio in literally 5-10 minutes a day. Even 5-10 minutes a week if that's all you want it to be.
And everyone has at least 5-10 minutes for virtually anything. Especially your investments.
Managing your investments means getting rid of losers before they ruin your portfolio. Taking profits before you give them back. Making sure the reasons you bought a stock in the first place still apply. If the stocks you're in now have characteristics that never would have gotten you into that stock in the first place, then it's time to get out and replace it with a new stock that does.
Managing your portfolio is really just about paying attention. That goes for your open positions and stocks you're considering.
You Can Do It
Mastering these three steps is a gift you and your portfolio will enjoy year 'round.
You can begin by following proven profitable strategies to see how it's done and how you can do it too.
And develop the confidence in your trading that you've always wanted.
Your portfolio will thank you over and over again.
And to get started, you may want to look into our Zacks Method for Trading: Home Study Course. It's a DVD/workbook set that guides you to better trading step by step. In it, we go over in detail how to identify what kind of trader you are, how to find those stocks with the right style characteristics, and how to trade them so you can consistently beat the market. You can also explore some of our best performing strategies from all of the different trading styles and learn how to create your own.
If you're interested, be sure to check it out now. There is a limited supply of materials, so access must be restricted. Since a few spots are still available, I'm offering Weekend Wisdom readers like you a special arrangement that had expired earlier in the week. Until 11:59 pm Monday, December 27, you can get into this learn-at-home program at our cost.
Thanks and good trading.
Vice President, Zacks Investment Research
Zacks VP Kevin Matras is our chart patterns and stock screening expert. He runs the Research Wizard and personally developed many of its built-in market-beating strategies. He also directs the Zacks Method for Trading: Home Study Course.
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