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Use Market Timing Coupled With Portfolio Management And Our Best Stock Picks To Increase Investing Profits
By Geoff Green | May 6, 2008
I get a lot of questions regarding how to use stock market timing information in conjunction with our list of best stock picks. Here is one strategy that uses our best stock picks coupled with our market timing analysis that can significantly increase your investing profits.
The model portfolios are purely mechanical, meaning that once the stock market timing analysis has indicated that it is safe to invest in stocks, the top stocks from the best stock list are purchased and the appropriate stop parameters are used. If any of the positions are sold for whatever reason, the next stock in line on the best stock picks list is purchased. The model portfolio is operated in this manner until the stock market timing analysis indicates the end of the bullish cycle.
The model portfolios - and you can too - do exceptionally well just using this purely mechanical strategy.
You can greatly increase the profitability of your investing by using 2 extra steps that are easy to perform.
Step 1 - Incrementally Invest In New Positions From The Best Stock Picks
When I decide to take a position I invest only 50% of the funds allocated to that position. You’ll find out why this is important in step 2.
I then watch that position closely - in the beginning I look at the chart or closing price on a daily basis.
The next few days are critical to make money using market timing.
If I am right on this position the stock should be increasing in value - especially the day of and the day after I took on the investment. If it didn’t go up the day after the initial investment then a big warning sign goes off and I’ll adjust my stops tighter or sell the stock at market prices if it continues to trend down in price.
This is a difficult step for most people - you have to be able to admit that you have made a mistake and get out of a losing investment as soon as you can.
You have to face the facts - and the facts are that you thought you had timed the investment right and the stock was going to go up but it didn’t.
Don’t wait and hope that things will turnaround for the better. Big losses start with small losses and this investment need to perform properly or you should get rid of it. Run your investment portfolio like a business, underperforming employees have got to go!
If the stock goes up then I’ll invest the remaining 50% of my allocated funds as the stock trend strengthens.
Just this step alone will go a long way to improving the performance of your investing activities.
Step 2 - Cull Your Investment Portfolio on a Regular Basis
Culling your portfolio is a strategy that will continually jettison the weak stocks and increase your investment in up-trending stocks.
The ideal number of stocks to own in your portfolio should be 10 stocks. Sometimes I’ll stretch this number to 14 or 15 in my portfolio but I always strive for 10.
In strongly up-trending stock markets you’ll discover lots of stocks that are also trending up - especially if you review our weekly list of best stock picks.
If you follow a maximum holding rule of 10 stocks you’ll find that 2 to 3 of those stocks will be real winners, 2 to 3 will be losers, and the remaining 4 to 6 stocks will meander about, perhaps increase in price only weakly and eventually fall out of their up-trends.
So now you have a dilemma, if you have 10 stocks in your portfolio and you see a great investment opportunity developing in one of our best stock picks, what are you going to do?
Guess what, if you have a limit to the number of stocks you can hold in your portfolio, you are going to have to sell a position to make room for a new investment. If you are culling your portfolio you’ll quickly recognize which of the losing positions to jettison to make room for a stock in a better trend.
Then if your new position performs correctly you’ll be able to invest your total fund allocation into that stock.
Following these two simple steps will ensure that you put most of your investing funds into high performance stocks that are going up in price.
Always remember this saying - focus on the best and dump the rest - your investing results are bound to improve dramatically!
Topics: stock market strategy, trading psychology |
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