Is it possible to beat the Market? Why am I even trying?

You’ve all heard it before. You can’t beat the market [insert reason]. I call these people naysayers!! =P

Here’s some of the common reasons I’ve heard

• Index funds and ETFs are much safer and usually do better
• The fees and stuff will kill all your winnings
• The market is perfect and thus it is impossible to look for any mispriced stocks
• it takes too much time
• it is too risky

You know what? Of all I’ve ever read and experienced it seems that the above are all true for the most part! With a few exceptions ( you can dodge some of the fees) they are all perfectly true. So why do I continue to put my money in the stock market and try to “beat” the market then? I’ll try to tell you why I do it with as little words as possible!

1. Regardless of how “perfect” the market is there is still opportunity
2. I want to learn about how it all works and being in high risk, involved positions forces me to take the more difficult path and learn it rather than sitting back and watching it happen. I believe this knowledge is invaluable in reflecting many aspects of the business world as well as our culture.
3. I’m young (and dangerous =P) and I can tolerate risk.

The only one of the those that really needs explanation is #1 so here goes! One example, Psychology. Even though all information flows perfectly and no one can get an “edge” on the other by getting any information any earlier, that doesn’t change basic human organization behavior problems like mob mentality. Case and point: Microsoft rumored to buy Yahoo…. Instantly EVERYONE wants in on Yahoo and the stock/value of the company rises 20% within 2 hours of opening, then drops down back to exact same place as before within 4 days. Information flow is perfect, but mob mentality still works. I can’t imagine how many people lost money there. Basically, just because information flows at light speed or whatever these days, that doesn’t mean that its not humans making decisions based on their perceptions of the information and on other’s perceptions. There’s plenty of room for error, which is great for guys like me .

Conclusion : Trying to beat the market is totally possible. Maybe very difficult to maintain in a long term way but totally possible. There is just too much fluctuation out there to not be getting a piece of. It’s not for everyone but for young people, it’s definitely a good way to make some quick money [maybe] but definitely a great way to learn a lot about the business world.

As always, comments appreciated!
Double Up by R. Kelly

My Current Stock Picking Method/Strategy

So I’ve long wanted to do a post about this topic both because I think a lot of people would be curious about how exactly I pick my stocks with my limited experience as well as because I want to capture how I do it currently so that in a couple weeks or months or whatever time period I can come back and see that my strategies (should have) becoming more and more sophisticated and complex.

So I’ll be the first to admit that I’m no stock picking genius.

Sure I’ve made a lot of good calls somehow and I am actually ahead by just over a grand in a pretty short time, but for a novice like me this could definitely be beginners luck. I’l just throw it out there that I’m no pro and that if you follow what I do and lose money, don’t be mad!

This is what I do:

• Initial Things: I invest in stocks who’s companies they represent I understand. It doesn’t make sense to get into a stock or industry that you are completely unfamiliar with. How the hell are you gonna know when to get in and get out? You have to know the business and know how macro level things will affect that industry. So far for me, I am still in the tech area. I would like to see diversify my money to get some stability out there but I don’t feel comfortable investing in what I don’t understand so in the meantime I will watch more news and read more books to try and understand industries better so I can get out there!
• Research and PickingI take those companies and enter them into a google gadget on my homepage. I usually don’t go more than 10 stocks in there simply because then you can’t really get a feel for anything. Basically the point of this is to keep stocks and their prices and their news on the top of your mind. Every time I open a browser throughout the day or week, I see the prices for all the stocks. The point here really is to just make myself see them all the time so that those stocks are always on my mind. You’d be amazed how much more intuitive you become by observing the reactions of the stock market to the happenings in the real world. You start to get a real feeling for how a stock should be priced, when it is cheap, when it is too expensive, when it’s going to fall, when it should go up. The best thing about doing this on Google news is that it incorporates really well with Google finance. You just click the link of your stock ticker and it will instantly take you to this insanely useful page that has all the charts, news, company info, event dates, discussions, other news articles, blah blah blah blah blah that you could ever need as a beginner. The only bad thing is if you trade a lot as opposed to buying and holding, they are about 20 minutes behind which is kinda lame… but whatever. When I get stock tips, I usually read material about the stock on various news sites and then add them to my google gadget list.

• Buying: As I get a feel for companies and how they should be priced, I basically observe the numbers and events until I see more drastic changes (larger than 2% ups or downs) with in day or several bad or good days in a row. Then I mentally mark those particular stocks and then I’ll go research those stocks and try to figure out what happened and why those changes occured. Depending on the news and whether or not I judge it is legit enough to warrant such a drastic change I act accordingly and buy long or try to short it (ok i’ve only tried shorting 1 share of 1 stock so far but I do intend on learning more about shorting!!)
• Selling: When I do have a position (after I’ve bought some shares) I go ahead and start looking up news and stuff for that particular stock every day. I make sure that no piece of news about that stock gets past me, especially if the initial news depends on new news to happen for whatever reason. I usually try to have an exit price that I know I will sell at or get out at (though I’ve been a little bad at sticking to this). Either that or I specify a certain amount of profit I want to make before I get out which is usually something arbitrary like 100 dollars or 50 dollars or something.

A few mistakes!

So my biggest realized loss so far is Vonage (VG) and yeah, it really sucks to lose. And thinking back on this stock and my relationship with it, it was TOTALLY avoidable and now that I’ve made all the mental notes and such to prevent myself from making that same mistake again, hopefully I won’t do the same thing! Basically with this stock I bought it totally on impulse after it dropped 12% in 1 day even though there was no significant news regarding its drop. It was in the middle of a legal battle and so in the heat of the moment I thought it was a market reaction. However I failed to take into account that Vonage though seeming big with all its commercials and all that was still a small unestablished (relatively) company that had most of its chips in one VOIP basket. If that technology is in jeopardy, then their whole business is screwed! I bought this stock on an impulse and afterward I decide to read some news and opinions. To my terrible dismay Jim Cramer ( another discussion for another day) hated it, public perception was not great and just a slew of other bad news.

HATES….

Lesson Learned: Don’t Impulse buy, even a few minutes of quick research can save you a couple hundreds of dollars. Finding that perfect balance of going by gut feeling and research EVERY fact is something that all stock traders are looking for.

Alright everyone, I truly hope this information is helpful, I’d love comments on how I can improve deliver or anything! Comments are always appreciated!

I’ll leave you with the music I’ve been listening to while writing this!

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