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I started investing in individual stocks when I was in high school after a traveling special opportunity class that stopped at my school gave me information on finance and accounting and introduced me to the stock market.  I have been dabbling in trading and investing ever since then and have done fairly well, though my risk tolerance is high, which has helped me find a few big winners to skew my numbers well beyond the normal returns.

One thing I have often found true is that when it comes to “trading”, momentum is your friend.  The stocks that have done well will usually continue to do well in the short term. This makes for good day and swing trading opportunities, though I do far less trading than I used to.  While momentum trading is not fool proof and there are always risks, day trading based on technical and charts has shown to be less successful, and many people have fallen into the day trading trap thinking they have the systems in place and know what will happen, but sadly, around 9 out of 10 end up making little to no money (or losing money) and give up (I found a few places on line that were around 90% failure rate, though I cannot attest to that being verifiably true).  Given the large amount of work it is to research, monitor, trade and repeat (as well as the high stress), most people give up and just do long term investing.

When it comes to long term investing, time value of money and compounding make all the difference.  I am sure most people here are familiar with these finance concepts so I will not go on further about this, but simply holding and being long biased is the way you will most likely be successful in the capital markets.  If you are interested in doing some market timing to try and enhance returns, I have found is that you should often go against the crowd, or be a “contrarian”.  When everyone is saying buy, that is when you should look at trimming a position.  When everyone says sell and things look grim, that is when you should be adding to or building on your position.  While there are many factors in whether a particular stock/industry goes up or down, the main one is the supply and demand, and the crowd being on one side pushing up or down will allow you a good entry or exit point on the flip side of them.  Once things normalize, you should be happy with your trim or purchase.

Of course, with the rising popularity of index and passive investing, most individual stocks largely go up or down following that particular industry/peers, so stock picking is not what it once was as the company to company variances are not as extreme.  This has led to the underperformance of many active managers and hedge funds, as they have higher fee structures and have a hard time generating returns above the benchmarks they are pitted against.

Overall, there is no fool proof way to make money investing, but sticking to long term investing and keeping any day/swing trading to a momentum basis will likely produce results that will outperform most strategies, in my opinion and based on my experience.

Would love to hear others’ thoughts and insights on this as well!

Take care my friends,

Brian

Disclaimer: This article contains my opinions and thoughts but should not be used as investment advice.  I am not a trained investment professional.  Always do your own due diligence and make your own investment decisions.

Image courtesy of Pixabay.