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Our Stock Pick Manifesto
Stock picks, and the methods used to select them vary greatly from one analyst to another, and from one publication to another, but most traders, like yourself, only want to know just 2 simple things:
1) WHICH stocks to buy, and
2) WHEN to buy them.
Unfortunately, the answer to the first question is a lot easier to come by. After all, you can browse almost any page of any financial journal and find plenty of suggestions. Tune in to any CNBC program. Again, lots of analysts, lots of commentators, with lots of opinions as to which stock picks are the best.
Then, of course, there’s Jim Cramer pounding on his desk, rolling around on the floor, or going into hysterics about this stock or that stock. Great theatre, enjoyable television, a pretty knowledgeable source for stock suggestions, but once again, it’s mostly which stocks he likes and which ones he doesn’t.
"We choose to ignore the rantings and ravings, and the 'talking heads,'
preferring to choose our stock picks by the NUMBERS."
Yes, there’s comfort in numbers, and we want to see strong earnings and earnings growth, along with solid stock price stability in our stock picks. And, if it's not too much to ask, preferably stocks in strong industries, with solid institutional support, and other favorable criteria, too.
But even if you select only those stocks that are the very “cream of the crop,” as we do, it’s not good enough. How many times have you and I been burned by buying a good stock at the WRONG time? This “shoot from the hip” approach to choosing stocks can be costly—not only on your pocketbook, but on your nerves. No, you need to know the answer to that very important second question, namely, WHEN to buy them.
Luckily for all of us, though, there really ARE fairly precise ways to pinpoint when a stock is ripe for the picking.
"For us, the best stock picks are those that are poised to break through an area of price resistance
on explosive volume, or have exhausted their downturns and are preparing to head back up again."
What makes these two methods for identifying potentially profitable stock picks superior, to our way of thinking, is that the buy points can be spotted visually on a stock’s chart. Visual is good, because the information in a stock’s chart comes to us without any emotional attachments, prejudices, or “spin.” No one can argue with a stock’s chart. It is what it is.
We also like the fact that these ways of choosing stock picks have a long track record of success. Go back to the early 1900’s and you’ll find Charles Dow talking about a stock’s price and volume as the “great data reducers of the stock market,” in terms of their ability to look beyond the opinions, rumors, tips and hunches that can adversely affect the selection process. He also talked a lot about the importance of following trends, and how volume accompanies upward trends.
To us, it’s comforting to know that technical analysis of stocks dates back to the findings of the very first editor of The Wall Street Journal and the Dow Jones Industrial Average’s namesake.
We also find it comforting to know that stocks form the same proven chart patterns over and over again just before they make big moves. Not only before they BREAK out, but before when they BOTTOM out. After all, it was Jesse Livermore, one of the preeminent traders of all time who said back in the early 1900s "I absolutely believe that price movement patterns are repeated and appear over and over, with slight variations. That's because humans drive the stocks, and human nature never changes."
'We also like to use candlestick charts. Some of the savviest traders
the world has ever known have used them with great success."
What about them? Well, they date back to the 1700s when Munehisa Honma used them to predict the prices for rice. It is said that he executed over 100 consecutive winning trades, and amassed a huge fortune using, of all things, candlestick charts.
Today, too many analysts and too many publications purport to be introducing something that is earthshakingly new, when the art of finding stock picks has a long and distinguished history. One we didn’t invent.
As we stand here at the start of the 21st century, we owe a debt of gratitude to the hard work of those who went before, and all we can hope to do is to improve upon the methods they have handed down to us in choosing the very best stock picks we can find, to the very best of our abilities.
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