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Today's essay is a little different than you're used to. I'm not going to talk about any specific investment. Nor am I going to tell you about a stock that I think is about to take off. Frankly, what I have to tell you is much bigger... and much more important to your success as an investor.
It all began nearly three decades ago.
You see, I began my investment career while I was still in the Air Force. I spent 20 years in the service, rising to the rank of Lieutenant Colonel before retiring. During those two decades I served in Spain, Germany, Japan, Korea (at least 10 times), Iceland, and Guam.
In my spare time, I earned my MBA and became more serious about investing. I taught myself the ins and outs and read anything about the topic that I could get my hands on. (When I was stationed in Iceland, I would study the Financial Times for hours on end while my station was snowed in.)
I was especially drawn to trading. The rules-based approach of trading made sense to me. Rules take the emotion of out of investing. They simplify your choices. And they provide discipline.
A few years later, after retiring from the Air Force, I became a professional portfolio manager. I was in charge of private accounts and two mutual funds. I eventually managed more than $200 million in client money. I even wrote a couple of books on trading that you can find on Amazon.
But I've noticed a major disconnect when you talk about trading with many investors. Some people think trading isn't for them. To them, it's a dirty word. They think it's complicated, risky, and only for highly experienced investors.
That's causing the same people who would benefit the most from trading -- those looking to make more money from the stock market while largely avoiding the downturns -- from reaching their goal.
Truth is, just like regular investing, trading can be as complicated, or as simple, as you want. I much prefer to focus on the simple aspect to increase returns.
In fact, I sometimes hesitate to call it "trading." Most people equate that with moving in and out of stocks in a matter of hours, racking up huge commissions and ignoring any fundamentals. I don't think 99% of people should be doing that. I look for holding periods of six to 12 months. I wouldn't be surprised if most people who claim to invest for the long-term have an average holding period of less than that.
Furthermore, in addition to using relative strength (RS) -- a trading tool that tracks the performance of a particular stock and compares it to the entire market to tell me when to buy and sell -- I also focus heavily on fundamental indicators such as cash flow to determine which stocks to buy. The trading signals I use help determine when to purchase these stocks to increase the likelihood of a gain.
Most importantly, I am just as focused on when to sell as when to buy. A good set of trading rules, including stop-losses, lets your winners run and cuts losses short. This helps to protect you from the wild swings we've seen in the market during the past few years -- something that can help any investor.
Trading isn't some great unknown that should scare people. It's another tool to make you understand an investment better and potentially make more money -- just like understanding a P/E ratio or a balance sheet.
I understand that many investors have a ton of questions about how they can use trading on top of their current investments to generate higher returns and limit potential losses. And I plan to cover these topics in future articles.
For now, my team and I have put together a new report -- Answered: Your 10 Most-Asked Questions on Trading. This free report covers the most common questions investors have about trading, including what simple signal will likely predict the end of this bull market. In addition, I go into more detail about everything I discussed above.
This report is absolutely free. Click here to read it now.
As a die-hard value investor, I struggled with its valuation in the past, but now I'm ready to pull the trigger.
Following a breakdown, there are simply too many bearish technicals on its chart to ignore.
As bearish trends take hold, this pick has become an overpriced company in a struggling sector.