It is much better to pick stocks when the market is closed than when it is open. It is much better to pick stocks when you have some peace and quiet. Looking back at stocks I have bought over the last ten years and comparing the results, I would have to say that I have done much better making the decision on the weekend than I did during the trading day with too many distractions, news flashes, and my own rambunctiousness. [From the dictionary - marked by uncontrollable exuberance: Unruly]
I have found various factors that make a difference in the long-term success of investments. Adding WHEN to make the decision is not a factor I've encountered. Simply put, if I was to create a value fund based on my other tested factors, I can now say with almost absolute certainty that adding the 'When factor' would improve its results. So my short list of stock fund criteria includes the following:
- Strong sustainable cash flow
- Low Price-to-Book ratio
- Low Price-to-Sales ratio
- Return on Equity (ROE) higher than the P/E ratio (trailing)
- Positive return on Invested Capital (ROIC)
- AND NOW - do not make buy decisions when the market is open
I think it is always a good idea to make decisions when one is less stressful, but I never gave it as much thought as I have recently; especially when it comes to stock picking. Those of you who have read my Chasing Value or Serious Money stories have seen all of this before repeatedly. Now with the last factor, which is not visible to investors in any mutual fund, I add one more area of personal discipline. Of course, for the traders among you, making your decisions when the market is closed might be a tad difficult at times.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.
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Reader Comments (Page 1 of 1)
4-28-2007 @ 8:18AM
Robert Freedland said...
This is a great comment! However, it is possible to pick stocks each day after the close of trading. I am an amateur investor and write up stocks based on similar factors: earnings, revenue growth, dividend growth, stable shares outstanding, free cash flow, reasonable balance sheet, and valuation issues like price/earnings and PEG ratios. I do look at ROE as well as price/sales ratios.
The "calmness" that you comment on is imperative. It is easy to get caught up in the frenzy of investment decisions, and harder to step back and make relatively unemotional decisions. I believe in letting the stocks that I am interested in 'come to me' rather than searching for them. I say that, only slightly tongue-in-cheek, because I wait for them to start moving higher, checking the list of top % gainers each day, looking for new candidates to evaluate.
If you are interested, I write up my amateur blog at http://bobsadviceforstocks.tripod.com/bobsadviceforstocks/
("Stock Picks Bob's Advice"). I am just an amateur, but I love to think about stocks and believe that a rational approach, like you detail, is far better than any screaming assessment.
Bob
4-28-2007 @ 9:28PM
William Worthy said...
NEW TO THIS
4-29-2007 @ 9:29PM
Stevie Gee said...
A very good idea indeed. "No pressure stock picking"
4-29-2007 @ 11:34PM
Lisa said...
Good advice, but I end up following it whether I want to or not. I accumulate money to purchase one hundred shares of one of three or four stock picks every few months, plus I purchase two or three times a month at brokers who do dollar-based trades (Foliofn, Sharebuilder). I don't make my final decision as to which stock to purchase until the weekend before the buy, and I always have a month or more to decide. Being forced to not purchase on impulse has served me well.
Okay, so both of my impulse purchases haven't done horribly either, but I limit my impulse budget to less than 0.5% of my total portfolio value. That way I can still give in to stupidity, peer pressure and greed and not significantly hurt my overall position.
5-12-2007 @ 9:32AM
Stanley said...
so what is the best book or other source to learn how to research the things noted?