wisemon,
nobody is calling no one stupid
i think i know your strategy
you are playing on earning report
and with your biotech, new FDA approval, testing result, and discovery
trust me, i know bro
i've been in this game for a long time
like i say it can go
50/50
if you choose to go this route,
i recommend you put a stop loss
not trying to scam everyone here
hmong people just started playing this white man game
so gotta spread the word and teach people the right stuff
Risk management and portfolio theory can be simple. Here is an algorithm.
You have 100 dollars. You can only buy 10 dollars of stock at a time. You can only have 70 dollars (7 position) out at a time. Why save 30? The 30 dollars is your cushion. You are not to use it unless you are stuck and believe the market is wrong. This allows you to average down or absorb losses without breaking the bank. Some argue for 5 dollars a time OR only 50 out at a time (never all in one position), but these guys are SUPER wealthy.
Now that you the defensive strategy setup, how do you select your offensive strategy? Offensive selection is the HARDEST part:
VALUE INVESTMENT THESIS
If you use Buffet, Bogle, or Graham's method then the selection is pretty straight forward. If a company pays a dividend and it's a consumable business that people will always need then invest in it if they have good management and culture. In addition, invest in what you know. The classic case here is Coca-cola 30 years ago. I don't know if I recommend coca-cola because sugar drinks are fading for healthier drinks. This is YOUR strategy. This strategy is called a LONG game and has a basic principle of dividend paying and profit over time = wealth. TRUE. Since this strategy is long-term, I decided why should I do the work when the fund manager is doing this for me? So for my 401k/IRA I let the fund manager do the work. It's far more efficient than what I can ever accomplish.
CYCLE/BALANCE INVESTMENT THESIS
If you use Lynch, Templeton, and Dalio method then they state that market moves in a cycle. Their goal is to identify market cycles and invest going into the upcycle, and bail before the down cycle. Lynch also encourages to take the risk. If there is blood on the street, you buy is what these guys would do then you sell when euphoria sets in... Today we call this the hype cycle.
Aside from that, there's the basic accounting 101, read the balance sheet, income statement, look at free cash flow...this type of review doesn't work on a growth stock because they normally are burning cash and raising cash. For example, Buffet and Graham method never have seen Amazon, Ebay, Facebook, etc... because the value thesis would never see the growth thesis. In 1990 to the present, the growth stocks outperformed the value stocks.
GROWTH/DAY TRADING INVESTMENT THESIS
This is one is harder to describe because fads do exists. In growth, you look at technology stocks and invest in a company with significantly higher growth than the market. For every facebook there is a myspace. So there's really no repeatable way here...Some use a metric in tech stock like number of users...for example Daily Average User is a growth metric for social media. But what about a biotech stock? Clinical trials make and break a biotech...so good clinical can mean 100% gain...but this is like gambling....so what really comes down to is that 50/50 as you've said...but it's slightly better than 50/50. One way to get some advantage is you look at trend...if a stock is trending negatively before the catalyst, the short cover will be higher... In this game, information is wealth, and so staying on top of information is key... Some people use scanners to scan the market for news and trend. Some people use technical analysis 50dma/200dma, RSI, stochastic, macd, volume and so forth. In my opinion, volume leads to pricing...one catalyst is ER...so in my game I was playing ER... You are right...I should have use a stop loss but it didn't matter...by 9am ET, the 10% loss was there. So I said keep it due to 24% revenue rise from last year...the market is wrong...time will tell. It's also telling me I should buy SNAP but I'm scared their DAU is not mDAU.
I honestly try a bit of this and that...to figure out my own investment style. As you said, risk management is the most important thing and to each their own. My 401k/IRA is long term, so the portfolio is high risk only in funds...I'll adjusts it downward as I approach certain age. My day trading account I day trade...To be VERY HONEST, it's a hobby...it's shop talk to senior management. Sometimes I don't trade actively and I put them into ETF and work. Sometimes I get excited about trading and I start to research the market to see what to do. I think most importantly, nobody rises to the top rank without understanding economics and markets. Nobody gets to the top position without learning how to make sound decision based upon high ambiguity, and being able to talk about learning from bad decisions. Call it practice to stay on top of things.
GTLA