This is a question that I get asked a lot. It is a very important question, and unfortunately, a very hard question to give a simple answer to. That is because there are so many variables. Questions like; What is your time frame? Days? Weeks? Years? How much constitutes UP? 10 Cents? A Dollar, 10%? 50%? Are you a Fundamentals investor, a Technical investor, or a Combination investor? How closely do you want to watch your investments? How much money do you have to invest? Every one of these questions has an impact on what you will look at, and for. Lets look at some of these questions and how they affect what you should look at.
The amount of time you want to spend on your investments makes a huge difference. If you want to spend a couple of hours a day every day then you can deal in very volatile stocks. If you want to look at a monthly statement 4 times a year, then you need more stable types of investments. If you don’t care till you retire, you will need long term established companies. I have found a direct correlation between return and your interest in your money. I started off by buying Mutual Funds, and looking at statements every quarter (maybe). It took a few years (about 18) before I realized that even though the investment was going up, it was not going up at a rate that would give any kind of retirement. My investments were averaging 1.8% a year. Even during the time of +15% interest. If I had of put my money into 3 year GICs I would have had several times as much return with the same level of safety.
Once I got interested in my money, and started asking questions, and making regular changes to my Mutual Fund portfolio, my rate of return more than doubled. That still wasn’t that great. It also took more of my time. I will admit, that not looking can be way less stressful than keeping track. If you didn’t know about the crash of 2008, today you would hardly notice the affect. Like most things in life, you either do the work yourself, or, you pay someone else to do it for you. What you pay someone else, comes off your profit. That is the same in both Real Estate and Stocks.
If you have a long time frame, (5yrs plus) you can ride out many of the market swings. Historically over any 20 year period, the market went up.
Here is the 5 year chart for Magna International. As you can see, if you had of bought 5 years ago, today you would be up about 50%. If you were not watching this investment closely you would never have noticed the dips of 2016. This is an excellent example of how major companies generally move up over a long period of time. But it also shows the dips and peaks that happen over the short periods.
Over any daily, weekly or monthly period the market can have very large swings. (Like the above chart.) I have held loosing stocks for a few years until they come back again. (Not a good idea!) Today the marijuana stocks are a good example. In February almost of all of them were at their peak. Today most are not. Talk about a roller coaster.
As a mater of fact 2 years ago, most of them were not even listed. If you have a long time frame you want to be dealing in stocks that have proven they can last. Stocks like Ford Motor, Proctor and Gamble, Magna, etc. Along with this longer time frame, is your level of investing. If you have $5000.00 then you can buy 100 Telus shares. ($43.35 as of writing). Even if they go up $10.00 over 5 years that is only and extra $1000.00. If you have $50,000.00 then you can buy about 1100+ shares and the increase of $10 is significant.
Fundamental investors look for companies with good growth potential and strong balance sheets. Technical investors look for stocks with the right chart profile. Combination investors look for good books and good profiles. Fundamental investors usually have longer time frames than Technical investors. Technical investors normally have to devote a considerable amount to time to watching what is happening. As you can see what you should look for in a stock going up can mean many different things. There are some common points.
- A company with good management. Even a newer small cap with a team of proven managers is potentiallya good choice.
- A company with minimal debt. A company that is worth $10 mil with $2 mil debt is a far better company than one worth $2 mil with$10 mil of debt.
- A company that is at the start of launching a new in demand product, or an established company that is launching a new improved product.
- From a technical aspect you want a company where the volume is improving, an RSI below 70 and where stock is being accumulated.
I like to think I am a Combination investor. Not having a lot of money to invest when I started, caused me to have to deal in less expensive stocks which have much larger percentage price swings. Investing $500.00 on Monday and then finding Friday that you have lost $150.00 gets your attention real quick. I was lucky that when I started, the market was moving up fairly steadily, and I made some lucky guesses. I eventually learned about how to read a basic stock chart. (I am still learning) This allowed me to look at the financials of a company and also see what the market perception was at that time. If it was a solid company and the chart showed an upward trend it was time to buy. As soon as the trend started down, it was time to sell. I spend a lot of time with my stocks. I average about an hour a day, and 3-5 hours on weekends. I manage all of my own investments. I take the blame for my losses and the cheers for my successes.
If you have higher amounts of capital to invest, seriously consider DIVIDEND paying stocks. There are several posts on the blog page about dividends. There is nothing 100% guaranteed in the world of investing. This includes dividends. They can change. However they normally do not change as fast, or as often, as the price. In the chart below is DFN. It pays $.10 per share per month. (has all year) So if you have 1000 shares you get $100.00 a month from the company. (that is $1200.00 a year.) You get the dividend regardless of the price of the stock. As you can also see the price looks like it moves a lot, but it is only in the 1% change rate. The yield (comparable to savings account interest) is just short of 12%. What are you getting in your Mutual Funds, GIC, or Savings account???
If you are interested in managing your own investment, have patience. Do not jump in the deep end without a life jacket. In Canada you can open an online trading account ant any major bank or CREDIT UNION, which will allow you access to their trading platform and research tools. SPEND 12 MONTHS LEARNING HOW TO USE THE TOOLS, DO RESEARCH, AND HOW TO READ A CHART, BEFORE YOU USE ANY REAL MONEY!!!
Have questions? Email me and I will respond.