Zen and the Art of Deciphering the Stock Market – Part 1

Zen and the Art of Deciphering the Stock Market – Part 1

I’ll be the first to say I’m not an economist, a financial analyst or hedge fund manager. I don’t like classifications and categories all that much, anyway… and everything I’ve learned from work with the stock market is just by sheer observation and self-study. Having said that, I want to share things I’ve learned through trial-and-error and somehow making the right calls when buying and selling stocks.

Buy Stocks Whose Companies Are On The Cutting Edge of Technology

For future growth, you have to invest in companies that provide future technology and are paving the way to the future. Yes, it’s a given, but how many people buy into a stock just because it’s the hottest thing right now, or there’s been a lot of talk about it. Just make sure the company is sound and has that “IT” factor… cutting edge IT. Anything else could be a pump-n-dump scheme. So in that regard, do your due diligence and study the company first, then the stock price.

Cash is King vs. Cash Drag

Don’t put all your money into investments. Save a certain percentage of cash so that you always have the opportunity to buy a good stock at bargain prices. Financial Analysts will go about talking about ‘cash drag’, having cash that is just sitting in your portfolio and not invested in stocks. And I agree that money just sitting there isn’t potentially making money in the stock market and not collecting dividends.

My theory is that you should always have cash to buy stocks when the market tumbles or there is a market correction. It could be 10% or it could be 30%. If you don’t have the cash you’ll be forced to sell stocks in order to buy more stocks. See the logic? One should always keep a few months of cash that would cover living expenses anyway, so in that regard cash is king. You have options of liquidity. And you have the ability to buy a new stock at any given time!

Growth & Momentum Stocks vs. Dividend Stocks

This is from my own experience only. I’ve never had any reason to focus on dividend stocks. I’m mainly concerned with growth and momentum stocks, and while they don’t have a dividend, they can be more profitable than dividend stocks simply because you can only get 3-5% yield from a great company providing a dividend. One of my stocks, Shopify (SHOP) has made more than 1,000% profit in 3 years, and this blows away any solid dividend paying stock.

Strike a balance in your portfolio between dividend stocks and momentum/growth stocks. I think you’ll be happier as an investor because you get the best of both worlds. And if you have thousands of shares of any combination of dividend stocks; then more power to you. I’m not there yet, so I focus on momentum/growth stocks.

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randomguru

Portfolio Manager & Musician

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