There are four primary methods you can use for picking your investments. Each is substantially different from the other and while you may think you can inter-mingle them, selecting one method to choose your investments works best.
The FOUR choices for picking your investments are (in my preferred order):
- Technical Analysis
- Fundamental Analysis
- Newsletter Subscriptions
- Personal Choice
I suggest Technical Analysis first for a variety of reasons, particularly:
- It eliminates or reduces emotion based decisions.
- It requires minimal time, just 20-30 minutes a week (with the right investment software program)
Technical Analysis involves analyzing the price movement of a symbol to forecast its future. It works equally well with mutual funds, stocks, and ETFs. When used with rules or parameters to decide when to sell, the potential profit gains can be both quick and substantial. Technical analysis methods can be used for short-term investments of a few months, or for long-term where a position is held for many years.
Fundamental Analysis involves looking into a company’s management, evaluating its profit and loss statements and balance sheets, looking for the company’s products or services and reading research reports. This is the method used by famed investor Warren Buffett. Fundamental analysis may take you anywhere from a few weeks to months to evaluate each company before a buy decision can be reached. This method is best suited for those with lots of time and for those investing for the long term with no expectation to see substantial gains for many months or even a few years.
Newsletter Subscriptions means you will take the advice of someone else, a newsletter writer who makes buy or sell recommendations. There are hundreds of investment newsletters to choose from. There are both conservative and aggressive newsletters; some are pessimistic (bears) always predicting a market decline, and some are optimistic (bulls) always confident that the market will be going up. Every newsletter writer will tell you he predicted this or that AND with his suggestions you would have reaped enormous gains. They all say this even though they almost all disagree on what stocks, mutual funds, or ETFS to buy.
Personal Choice is the other method of choosing your investments. I call is Personal Choice out of kindness. In reality it should be called Emotional Choice. Let me explain: Many years ago I decided to buy Northwest Airlines. Why? Because I had flown more trips on Northwest Airlines than any other airline and I read good comments about them in the Wall Street Journal. When I sold my shares I made a decent profit, then a few years later I decided, well I profited from then once before so I should buy Northwest Airlines again…so I did. But this time I lost money, and my losses were far greater than my original gain from the first time I bought Northwest Airlines. That is emotional buying. Emotional buying can be based on tips, your friend’s advice, you kids favorite toy, or just because you or your friend had a “hunch”. I don’t recommend buying on an emotional, personal choice basis. This is gambling and while there are winners in gambling it is the casinos that profit the most. Safeguard your money. Don’t invest your money by using personal choice.
Whichever method you choose to make your investment decisions depends on just a few factors if you are serious about making money in the markets.
* How much time you have to manage your investment portfolio
* How much control you want over your investments
Dominick is the designer of the investment program Dynamic Investor Pro, an investment software used by individual investors and professional investment advisors for stocks, ETFs or mutual funds.