Below is the best approach which i considered for investing or holding positions with stocks.
- Don’t follow advisory services. They are not infallible
- Be cautious with brokers’ advice. They can be wrong
- Ignore market sayings, no matter how ancient and revered.
- Don’t trade over the counter stocks- trade only listed stocks, there will be always a buyer for it.
- Don’t listen to rumors, no matter how well founded they may appear.
- The fundamental approach (long term positions) works better than gambling (short term or intraday).
- Hold on to one rising stock for longer period , rather juggle with a dozen stocks for shorter period.
List the stocks as below before obtaining positions:
- Stocks with top quality rating.
- Stocks the experts like.
- Stocks selling below book value.
- Stocks with strong cash position.
- Stocks that have never cut their dividend.
The stocks belonging to the same industry have the tendency to move together in the market, either up or down.Try to find through fundamental analysis of
a) the strongest industry group.
b) the strongest company within that industry group.
Buy the stock of that strongest company and hold on to it, for such an ideal stock must rise.
Whenever a stock started to behave better than the market generally, immediately looked at the behavior of its brothers— stocks of the same industry group. If found that its brothers
also behaved well, look for the head of the family—the stock that was acting best, the leader. If you could not make money with the leader then certainly you will not make money with the others.
Start compiling earnings of whole industry groups finance, metals, oils, auto, consumer etc., compare their past earnings with their present earnings. Then compare these earnings with
the earnings of other industry groups. Carefully evaluate their profit margins, their price-earnings ratios and their capitalizations.