mxt_77

And I've lost almost 1% in <8 hours. Fortunately, I've only invested 5K to start, but I've got to learn to stop checking prices every hour. This is supposed to be a 1-year investment, but I'll never last if I check it too frequently.

Aside from the company stock that I own, this is my first venture into regular stocks (I've got mutual funds in my 401k & Roth). I've got my fingers crossed and hope it goes well. I'm following a "system" that, on average, has pretty much doubled the market average over the past 20 years. Unfortunately, "past results are not an indication of future performance." We'll see how it goes.

trainwreck

a. wut is the system?
b. dont make the mistake of keeping more than 25% of ur portfolio in your company stock.

chroot

The prices of many stocks vary by as much as 5% per day, and most of that movement is nothing more than plain ol' noise. It can take a few days or even a week for the price to change appreciably out of this noise floor to really show you whether or not you picked the right direction.

There's nothing wrong (or even concerning) about losing 1% in the first day of a trade. If you called the direction of the movement properly, you should be firmly in the green after a few days, and then you just have to decide when to take your profits.

Of course, if you chose the direction improperly, you'll have to deal with the far less pleasing decision about when to cut your loss. You're hopefully aware that we're in the midst of a mild bear market. In fact, we might be near what appears to be the end of a pretty strong bullish correction. If you went long today, it's very likely that you will lose money in the near term.

I'm also really hoping that your first foray into stock investing didn't involve you buying a few large positions in stocks that someone else recommended to you. Please note that fewer than 1 in 5 investors are capable of making returns greater than 15% for two consecutive years. Your "system" is not likely to be as successful as you have claimed.

Here are some of my rules of thumb. They work for me, but may not work for you. Do with them what you will.

1) You almost never get just one chance on a price. Stocks often revisit a given price many times over the course of a week.

2) Don't confuse noise with real price movement.

3) Don't get freaked out by small losses early in a trade. If you accept that prices move in essentially random ways over short periods of time, you must accept that about half of your trades will lose money at first, even when you've made the right call.

4) Always leg into positions. Never just go out and buy a big hunk of anything all at once, no matter how strong your conviction. Open large positions in halves or thirds, allowing the market noise to give you a chance to obtain better average prices.

5) Decide when to get out before you get in. You must take on risk to get a return, and you need to decide how much risk you can tolerate. I generally close positions when they've lost 3% of my total capital and I don't see any immediate reasons why the direction should reverse.

6) Don't confuse a trade with an investment. It gets really easy to fall into a day-trading habit if you're the sort to watch the ticker all day long. Most day traders are not successful. See rule 2.

Good luck to you.

- Warren

mxt_77

I'm too lazy to explain it, but it comes from "The Motley Fool Investment Guide" which was published circa 1995. It deals w/ picking a handful of stocks based on their dividend yield and their stock price. At the time that the book was published, the system would've pretty much doubled the market for the previous ten years (1985ish to 1995ish). Just to double-check that this wasn't a fluke, I ran the method on the subsequent 10 years (1996 to 2006), and it was still around 2x the market returns. It doesn't require much analysis, and it seems to be a relatively 'proven' method, since it has a successful track record over the past 20 years. It doesn't always beat the market, but on average across the two 10-year periods that I mentioned, it significantly outpaced the market.
Don't worry 'bout that. I have some company stock that's currently under water, but it's not a subsequent amount of my overall portfolio. I'm just holding it until I need to take that loss for tax purposes or until it reaches a certain price target. But for the most part, I'm pretty much ignoring that stock for now.

As for the 1% loss, I know that's not uncommon. I was just joking about it because this is the first day I've really been in regular stocks and it was a 'down' day for me. Overall, I'm not worried... these are a long-term investment, and with the current state of the market, I don't expect anything exciting to happen with them for a good 6-9 months. However, they're all well off their 52-week high, so I'm hoping they'll eventually make their way back in that direction.

QUIKAG

I got tired of doing individual stocks because I follow them too closely and check every 5 minutes. I have a job that pays me a lot more than buying and selling stocks.

I'm a mutual fund, ETF, and index guy now.

mingster

i go for individual stocks that i really like (Apple, Google, Visa, Boeing, Microsoft)

then i go for ETFs

if you're really sure you want to invest for the long term, check out Magician's "system", now there's a true scientific approach to investing (IMO of course).

SD_S2K

Well I think you are confused.

You state in your OP that this is a 1 year investment.

Then you state this is a long-term investment.

1 year and long term do not go together.

Which is it?

mxt_77

You're right, my mistake. It's actually 1 year & 1 day investment. According to tax law, that's a long term investment.

In actuality, the money that I have invested will stay invested in stocks for a much longer time. However, they may only be invested in these 4 particular stocks for 1 year and 1 day, since that's how this particular 'system' works. I buy the stocks and keep them for a year (and a day), then I re-calculate and may sell some and re-invest in a different set of stocks at the end of that year... rinse and repeat every year after that.

I didn't mean to imply that I'd be cashing out after 12 months.

SD_S2K

Well most "systems" follow a pattern of going up and down, and doubling your investment

What happens to your system if right before your one year and one day mark (when you're supposed to pull out), your stock takes a huge dive?

this is just a glorified day trading system, but with a slightly longer term

motley fool is right

mxt_77

Interesting. That's probably true. For this particular system, it beat the market 9 out of 11 years, and the average return over that period was 2x the market's average return. That's good enough for me.

Then you might lose money. Or, maybe the "system" will tell you to stay in it and ride it out for another year. Or, you could choose to stray from the system for a bit, or discard it altogether if you feel confident in your trading abilities. Either way, that could happen with any investment strategy. There's no way to see the future of your stock. And even if that were attainable for the average investor, there's no way to control outside forces that could still have an effect on the stock. Sure there might be better systems, or better ways to pick stocks, but I don't have the knowledge and expertise to do that yet, nor do I have the desire to spend a considerable amount of time researching stocks. However, I wanted to get my feet wet using a simple method of investing that provided reasonable expected returns and an amount of risk that is acceptable to me.

OK, if you say so, I won't argue.
I'm not advocating that anyone should try this same system. I'm trying it because I did a bit of research, the logic behind it made sense to me, it requires very little effort on my part, and I just felt like giving it a try. I'm not putting a large amount of my overall portfolio towards this "experiment".... just enough to benefit a bit if it's successful, but not enough to feel too much pain if it fails in dramatic fashion. To each their own, though.

I'm sorry, I can't hear you over the sound of how awesome you are, apparently.