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I don’t think I’ve yet made a single post outlining my investment strategy. There are plenty of posts about little bits & pieces, but not a single post that outlines it all. This post will attempt to do that.

First, I’m not formally educated on investing. Serious investors may think this is the biggest joke ever, but it works for me, giving me just over 30% returns year after year. Even when times are bad, there are stocks that will go up.

Let’s start with a simple concept: what makes a stock price rise? P/E ratio? Earnings? Leaked news? No. Much simpler than that.

A stock price will rise when there are more buyers than sellers.

So I don’t care what’s going on with the company - as long as I know what others think of a stock, I can generally pick good ones. So what do I look at?

In the end, I look at the NetNagel Stock Index, which is an ever-evolving formula that takes numerous sources into consideration. The one constant, however, is that I need a stock that’s positioned to go up at least 33%. That’s my trigger point. I also look at ratings on other websites and analyst opinions.

So let’s say I find a stock that I like… say OXPS. I love OXPS, actually. Not today, but I loved it about a year ago. So I ran out and bought some, then bought some more when it went down.

I should make a side-note here that if I believe in a stock, it goes down, and there is no reason for me to change my opinion on the stock, I buy more. Now, it has to go down enough to make it worth-while… say 10%. OK, back on track…

I then figure in my commissions: $7 per buy, and $7 to sell. I keep track of the dividends I’ve received from the stock, and from that I have a total cost (shares & price paid plus commissions minus dividends). Now take the total cost, divided by the total shares, plus 33% and that’s my target selling point. Finally, take the target selling point, divided into the total cost and that’s how many shares I will sell at that price. Here’s my OXPS example:

Shares: 118
Paid: $23.3839
Commissions: $21.00 (I bought twice, and will sell once (well, I’ll sell twice, but only once short-term))
Dividends: $22.14
Total cost: $2,758.16
Target price: $31.17
Sell off: 88.5

Paid: $2,758.16
Sell 89 at $31.17
Remaining: 29 (valued at $903.80 )
Cashed in $2,773.74

What I’ve done is sold enough to cover my initial cost, but held onto the rest. That’s my “profit”. I’ve done this time & time again, and in doing so have built up a wide portfolio that includes FDO, DLB, JBLU, DIS, CDL, VEIEX, GRMN, YHOO, UTI, NTDOY.PK, PRAA, IRBT, and ADY.

The final element to my investing strategy is that I must understand the company that I’m buying. You’ll hear that a lot from other places, too. You can understand the numbers, but if you don’t understand what the company does, how can you be confident in your buy? Doing this means my portfolio is a bit tech-heavy, but I also own a couple coffee stocks (I love my coffee), retail stores, financial institutes, an automaker, a railroad, energy companies, and others.

One word of caution: investing in foreign markets can be tricky. Not only do you have to look at the company you’re investing in, but also the currency fluctuations that’ll affect the stock price.

Now be strict with this plan… once you’ve bought your stock, figure out what your target sell price is, and put that sell order in! It’s OK to do a trailing stop, though… you can squeeze out a few more bucks, and still be OK if the stock comes back down.

This entry was posted on Wednesday, October 17th, 2007 at 10:51 am and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.