Sunday, October 23, 2011

Two Kinds of Investing

I see two verifying types of investing, buying businesses as stocks for the long-term and second stocks as short-term trading vehicles to profit.  Both can be used to create a diversified portfolio and solid approach to investing.  The key is to remember which one is which and not confusing the two.

Always have a thesis for why you are buying a stock.  One thing that you will see with DWCM is our thesis or commentary as to why we bought or sold a position.  If you’re buying a stock for a trade make sure you don’t get caught up in thinking it is a long-term buy if the stock shoots up in price.  Or vice versa if the position does not perform as expected, have an exit strategy.  Not every trade works and it is better to cut loses and live to trade another day.  Sometimes the best trading ideas cannot outlast remaining solvent.

From a long-term perspective, investing can center on fundamental analysis or even technical analysis.  At DWCM we use a combination of both.  We utilize fundamental analysis in our initial stock search focusing on companies with low debt, steady cash flow, and consistent revenue growth.  Technical analysis is useful in determining stock entry and exit point or support and resistance levels if you will.

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