Investing Strategy

We are living in a dangerous investing world due to several factors. We have the financial problems of Europe as well as the U.S., we have high unemployment, and we have a bad housing market. Certainly we have seen some improvement recently in these situations, but we have a long way to go before a bull market in stocks can be declared.

Essentially, we are in a bear market, and the only way to succeed is through short term trades. Also, since sometimes the bottom is not clear on certain stocks, it is a good idea to enter trades with multiple buys rather than going all in when the stock could drop further. A classic example of this is GMCR, Green Mountain Coffee Roasters. It looked like the stock had formed a bottom in the first part of November 2011 when the price looked stable in the mid $60 range. They had already fallen around 40% from their annual high of over $100. However, when they narrowly missed earnings, the stock price fell off a cliff all the way down to $42 per share. If you had bought all your shares at $67, you would have experienced a devastating 37% loss in a day's time. If you had only bought $1000 worth of GMCR at $67, you could have bought the rest of your shares after it dropped to $42, and when the stock went back to $56 by December 2, you would have made a substantial profit instead of a big loss.

If you have a moderate portfolio of $50,000 and you limit your buys to $1000 initially, you will only be risking 2% of your portfolio until you see how the stock is going to perform. This small trade amount will also allow for significant diversification to add more safety. Then, if you can make $200 on most of the $1000 trades, those 20% gains throughout the year will probably amount to doubling your portfolio money each year!