The Trader's U E-Letter: Issue # 179
Wednesday, March 16, 2006
Investor Profile: Finding the Investing Style That Fits You Best
by D.R. Barton, Jr., Chairman, Trader's U
March Madness is upon us. The NCAA men's basketball tournament starts today, with 64 teams now playing for the national championship; there are underdogs, "Cinderella stories," and over-rated teams all set to begin play.
This is my favorite sports weekend of the year… 48 basketball games where heroes will be defined, hearts will be broken, and some unknown "David" will beat a nationally prominent "Goliath'"
And more people will place a friendly wager on the outcome to this tournament than on any other sporting event in the known universe.
People who wouldn't dream of gambling in any other venue place a bet in office pools and online sites, as well as with traditional casino gaming establishments.
Picking the winner out of a 64-team field is a difficult and complex endeavor. There are many strategies for winning office pools. And the way people fill out their brackets is a lot like the way they trade and invest.
Some folks love to do their own research: They watch the games leading up to the tournament. They read up on injury reports, and team strengths and weaknesses. And they make their own picks.
Some people just pick a sports analyst as their guru and go with his picks. Still others just ask their wives, husbands, sons, daughters or friends to fill out their bracket for them.
Investors and traders fall into these same categories, known as investor profiles. Knowing how you work best can be very useful in keeping on a profitable path.
Teach a Person to Fish…
Give a person a fish, and you feed him for a day. Teach a person to fish and you feed him for a lifetime.
The same is true for trading and investing. Give a person a good stock pick, and he has a good stock. Teach someone to pick good stocks and he becomes a profitable investor.
Problem is, some people don't want to fish or do stock research. But they still want to eat and invest successfully.
Knowing who you are as a trader or investor is one of the key criteria for success that I have written about before. It's critical that you know how you like to invest.
The "Teach Me to Fish" Trader and Investor Profile
People in this investing profile fall into one of two categories: There are the people that love to do research. This may be fundamental analysis, technical analysis or both. The intellectual stimulation is appealing for these folks, as is the satisfaction of seeing their hard work turn into a profitable selection.
The other type of people in this category are the folks that have to "do it themselves." Perhaps they have been burned by following others' advice, or they just don't have full faith in others.
Successful traders and investors in this category find an edge in the markets, design their own strategy to exploit that edge, and then execute it with discipline.
The "Give Me a Fish" Trader and Investor Profile
These are the folks that would rather have someone else generate the picks or leads for their investments. They follow newsletter picks or get selections from others such as brokers, analysts on TV, etc. They place their orders and manage their portfolios.
Successful traders and investors in this category are disciplined in following their newsletter's picks, keeping the proper stop losses, and taking profits when the advisor says it's time.
The "Catch Me a Fish, Clean It, Cook It, and Serve It To Me On a Silver Platter" Trader and Investor
There are many folks out there that want someone else to manage their money for them. They are willing to pay a money manager to make good selections and grow their account for them.
Successful traders and investors in this category perform good due diligence on their advisors and select money managers with styles and risk profiles similar to their own.
Which of these is the right way to trade or invest? There is no one "right way." It all depends on your belief systems and what fits your unique personality best. Find the style that fits you best and you're well on your way to long-term success.
Today's Trader's U Tips & Tricks
- Many people have a tough time discovering their own "investor profile." Here's a quick exercise that should prove useful in uncovering your own beliefs: Write down the 10 most important things that help people make money in the markets. Make your list quickly, taking no more than five minutes. Now, split these 10 into the five most important ones and the remaining five. Now cut out two more of the beliefs as just a little less important than the other three. With the three remaining beliefs, figure out which one is #1, #2 and #3. After you've done this simple exercise, you will have done more to understand your market beliefs than 90% of the people trading and investing today! So give yourself a treat!
The Chart of the Week
Apple Computer (Nasdaq: AAPL) has had a significant pullback since the start of the year. It has just tested an intermediate double bottom with a diverging MACD (meaning that momentum is growing while, AAPL was trying to break to a new low). This is a good place for a low-risk buy with a stop loss set just below the March 10 low.
- Stock and Investment Resources: What I Rely On Every Day
- Learn How To Invest in the Stock Market: Advice for a Novice…