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hello,
please advice if my strategy makes sense. i am only buying the stocks of very big companies and also from which the yahoo finance analyst opinion says 2.2 or better... and it should also be a stock price that is not its highest ever. do i make sense? i am not very knowledgeable in this but how is this strategy? i mean i dont think i will at least loose like this or can i ? following this strategy i bought CAT recently and now i am down 5% but may be it will go up again.. what do you think on that stock by the way?
1) I think it is fine to look at the average analyst rating, but you shouldn't use that as one of your main metrics on whether or not to buy a stock. Analyst ratings usually come AFTER good or bad news, so they aren't exactly up to date. You also want to own a stock BEFORE a hoard of analysts upgrade it.
2) Also, you shouldn't avoid a stock because they are at their 52 week high. In fact, if you were to blindly buy 10 stocks at their 52 week highs vs 10 stocks at their 52 week lows, I would be almost certain you would have a greater return or a smaller loss from the 52 week high stocks than the 52 week low stocks. When a stock keeps hitting new highs, there is usually a reason behind it. This isn't always the case, but most likely it is due to great earnings, growing revenue, increasing market share etc. There is usually a reason why a stock is at its 52 week low too. Not always, but most likely it has negative growth and a poor outlook etc.
3) Of course you can lose money like this! There is no stock investment strategy that has no risk of loss. However, some are much better than others.
4) This is the reason why doing what you are doing isn't a good strategy. You bought CAT based on analysts predicting it will hit 95.33 within 12 months and it isn't at its 52 week high. My opinion on CAT (LONG TERM, 5 years from now or longer) is positive to neutral. However, I would not own it in the short term. There are too many risks. They have missed earnings estimates for the last three quarters, their sales are declining, their profit is declining, and they cut their outlook for next quarter. I don't think it is an awful stock. However, I would not buy it now. If the overall market continues to go up, it could still go up with the market. If they surprise investors next quarter by beating estimates, it could go up.
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I hope that answered your questions. It's good you want to start investing early. I started when I was young and it was one of the best decisions I've made financially. You will make many mistakes, but you will be fine as long as you learn from them. You should welcome criticism and consider other people's advice or recommendations. However, you should NOT blindly accept them. If someone says buy XYZ because it will go up 25% by the end of the year, don't do it. Do you own research first. Ask why do you think XYZ will go up. If they say because they will be opening 50 stores in China this quarter, do your own research and find out if it is accurate. Find out more details about the expansion and what else is going on with XYZ (past, present and future). Look at the insider trading. Look at their past earnings reports. Look at their guidance for their next quarter. Check out the chart history. Check out analyst ratings. Research their fundamentals. Ask yourself, do I believe this company will continue to grow and why. What could cause them to fail. Etc.
They work for big investment institutions and often (not always, but often) recommend products that their companies already have shares of. The shares that the public buys drive up the price of these products. By the time you read the recommendations, the price is already high and the institution is selling theirs for a profit.
It's not a good idea to start investing if you're not sure what you're doing.
Learn how to evaluate stocks yourself before you start investing. You can start to learn by reading books that will teach you about the markets and how to evaluate stocks. The following are excellent:
The Intelligent Investor by Benjamin Graham Common Stocks and Uncommon Profits by Philip A. Fisher Security Analysis by Graham & Dodd One Up on Wall Street by Peter Lynch
good book. I wouldn't look into analyst ratings at all. Don't even pay attention to them. I also focused less on value and more on company Moat and that is when everything came together for me. I also never sell (I do have some trading money) but most just sits in companies I invest in.
I typically have a watch list of companies I really like. wait for a big pullback to the 200 day or a complete slaughter during a bad market and I buy the company when it starts making a new uptrend and just hold on. Sometimes I use my "trading" money to start a position, ride it up till the uptrend is broken and take out my initial investment and hold the porfits in the stock. I do this in my roth IRA so I don't have to pay taxes. It's not a huge amount $6,000 that I do this with. the rest of the money just sits in investments.
I will pile on to what everyone else is saying. Ignore analyst ratings. Ignore any and all stock recommendations from talking heads like Cramer. Stay clear of all financial opinions from all the websites like yahoo, motleyfool, forbes, etc. They are great places to read news about a specific stock but the strategy info from them is poor. Start reading lots of books from succesful traders. Ignore books that claim to have a secret strategy or can't lose strategy, instead focus on books that teach you how to understand and develop your own strategy.
I sometimes look specifically for stocks making 52 week highs in an up market as thats a very reliable indicator that the stock is in an upward trend which is what you want.
Oh probably the only thing more important than knowing when to buy a stock is knowing when to sell if it goes the wrong way.
Thanks. In yahoo though the analyst ratings move very slowly from week to week. So doesn't it mean that in general they think it is good buy. For example aapl or goog ratings have been good and about the same for months. Thanks for very informative answers
About 10 years ago it was discovered that analysts were taking money to make companies look good in their report. I'm sure it's still going on, so I never listen to analysts. Also, I never listen to anyone that works for a brokerage house.
Always make your own decisions on investments.
Look at the total market and decide if the market as a whole is trending up or down. If it is trending up then almost anyone can make money by just buying good stocks. If the whole market is trending down then even experts could have a problems picking stocks.
I will pile on to what everyone else is saying. Ignore analyst ratings. Ignore any and all stock recommendations from talking heads like Cramer. Stay clear of all financial opinions from all the websites like yahoo, motleyfool, forbes, etc. They are great places to read news about a specific stock but the strategy info from them is poor. Start reading lots of books from succesful traders. Ignore books that claim to have a secret strategy or can't lose strategy, instead focus on books that teach you how to understand and develop your own strategy.
I sometimes look specifically for stocks making 52 week highs in an up market as thats a very reliable indicator that the stock is in an upward trend which is what you want.
Oh probably the only thing more important than knowing when to buy a stock is knowing when to sell if it goes the wrong way.
If I were a company or an insider that held stock and wanted to sell it. I would have an analyst do an upgrade on the stock to create a volume of buyers that I could offload into. Read the book about Jesse Livermore and his short term price movements as being a trader.
He needed exactly this to offload a railroad stock? Can't remember what the company was or if it was a railroad.
But when I see Cramer, I think of exactly what I would do if I were Goldman Sachs. Cramer, we need to offload a stock, please recommend to buy it so we have some volume to sell into.
Thanks!
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