Investing In Individual Stocks

If any of my followers are wondering my Monster Portfolio 2011 has improved since my last post and I'm on track towards my aggressive goal of finishing up 10% on the year. Also, on top of that I will be donating 10% of my earnings towards my charity of choice. 

Today I would like to discuss investing in individual stocks and what I have learned over the past 9 yrs of investing.  I can honestly say that investing in individual stocks can be difficult. You can make a lot of money and you can lose of lot of money.  The difference between winning and losing comes down to the amount of time and energy you put into researching a potential investment.  During my first couple of years of investing in individual stocks my success was hit or miss.  Maybe I was lucky that my first investment of Sirius Satellite Radio (SIRI) had a positive outcome!  Frankly the only reason I invested in the company was I thought it was a cool product and the price of the stock was cheap to my standards.  At a $1.82 a share being a broke college student this stock was right up my ally.

This strategy didn't work for long as I chose other cheap stocks that didn't work out very well.  My performance was rather negative.  My biggest investing mistake I have ever made was a company called Gamez n Flix (GZFX)  The company had a great concept similar to Net Flix.  They rented video games and movies through the mail.  Unfortunately, this company wasn't well capitalized and the management was sub par.  The outcome was I invested my money and I never received it back.  LOL!  They went bankrupt!  This stock was cheap for a reason. If I would have done my research I would have saved myself a lot of money.

Over the years I learned from my mistakes and my performance has improved with my stock picking abilities.  I contribute my success to extensive research, patience, and constantly looking for my next investment.  I have learned that if you over stay your welcome in a fast moving stock that eventually you give all of your gains back and then some.  My time horizon is situational.  I primarily invest in growth companies and as many of you have seen investing in individual stocks can be quite volatile.  The best resolution to reduce volatility is to diversify your portfolio. Another strategy that I use is to always have another investment opportunity on the back burner.  If you believe your investment has increased in value and isn't sustainable you have 3 choices

1.  Sit tight and ride out the volatility
2.  Sell into strength and wait for the price of your investment to come back down to cheaper prices
3.  Sell into strength and invest in other companies that have a better potential for return

I like choice number 2 and 3.  Option 3 works well!  No it's not fool proof, but if you can sell into strength and cycle your money into a better investment opportunity the potential for success is increased drastically!  Constantly keeping your money moving allows you to educate yourself on other companies, make money, and reduce risk all at the same time. Plus its extremely fun and it forces you to pay attention to your money.  A majority of the time I sell a stock is because I have a better opportunity elsewhere.  This allows my original investment to come back down to buyable prices and I cycle in and out of my favorites.  On the other hand if you buy and hold your stocks through high volatility you could make money, but now your up against buyer's remorse, emotional attachment, and the possibility of missing other great investments.  I have experienced this first hand. 

I'm not saying buy and hold is bad, but this strategy doesn't work particularly well with high growth stocks.  If you are going to buy and hold you are better off investing in well established dividend paying companies with consistent growth.  This strategy didn't work for me because I became bored and sold the stock at the wrong time. 

In conclusion find a strategy that works for you!   Constantly challenge yourself to learn each and everyday of how to become a better investor.  You can't always make money and at times you will want to give up.  In the end if you come out on the other side with more money you shouldn't be complaining.  My recommendation is to do your research, be patient and constantly keep your money moving.  Those 3 key factors have helped me develop a winning strategy. 

Clay-