I've been investing in the stock market for about 13 months. I've increased my starting investment over 40% in a little over a year. I did this even after investing in such losing companies as HouseValues and Select Comfort. The most important thing I learned from the ups and downs was to read the trend. If I own a stock, and message boards have many negative things to say, and they make me question whether the company has a sound business model then I am going to dump the stock and take the loss.I rarely hold a stock through an earnings release. Yes I've missed out on some huge profits, but I've saved even more from not taking huge losses.Lots of highly successful investors will tell you to buy for the long haul, that no one can time the market, and that you should diversify to limit those bad choices that everyone makes.Unfortunately for me, I didn't have a lot of money to play around with. I don't have the kind of money that will let me buy 20 different stocks--in thirds no less--and hold them come hell or high water. So I decided to limit my diversification to 3 stocks. This is no hard and fast rule for me though. If I'm holding a nice profit in one stock, and another that I'm holding takes a steep plunge for no reason--I always check the news before making a decision--then I will sell my profitable stock, and buy another chunk of the falling stock. This is part of my strategy. If I have a nice profit, I'm comfortable selling it.If I'm holding a loss though, I analyze why it's losing. Did they release a surprise earnings update like Select Comfort did for example in 2006 that made the price drop? If so, then I dump as fast as possible. Why do I dump? I know that the stock is going lower from where it is when I'm thinking about selling. If yesterday it was at 23.00 and today it's at 19.00 because they lowered future guidance, I know it's going down more. Over the next few days, it will dwindle down lower and lower.I was actually holding Select Comfort, when I noticed that Fuel Tech had taken a couple days of hard hits. I checked the news. The only thing of note was trouble in China. Other than that, nothing! It was down to 24 and change when I sold everything I had to load up on Fuel Tech. A couple days later I sold it at 27.48. So my strategy is essentially a timing system. I don't mess with crap stocks or so called 'HOT' stocks either. I like the Hidden Gems stocks, because they're mostly great companies that will have lots of wonderful volatility, and mostly trend upwards.If you diversify, you'll limit your downside and your upside. If you hold on to a loser thinking that one day it'll come back, well maybe it will, but who cares? You tied up your working capital all that time, when you could have dumped it and started working it back up with some winners.I watch about 20 stocks, waiting for nice dips. When I find a 4% dip or more I check the news, decide if the dip is warranted. If it's unwarrented like Fuel Tech was, I buy the hell out of it. When a stock goes up 4% or more I usually sell. I look at the profit/loss gradiant between a winning stock I own, and a losing stock I don't. If the gradiant is more than 6% then my decision is simple--unless there's news of course.
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