Stock Selection

So that is one of the biggest questions is how to decide which stock to choose. Why not just choose a mutual fund? Well if you want to go for it, but that is not my style because I believe in the American way of building wealth as fast as I possibly can. Here is where I choose my stocks http://investors.com/ Granted, it is a subscription website and you can get a newspaper or digital format called eIBD, but the knowledge you gain from the website is remarkable. The How to Invest tab gives free educational tips.

The author/owner Wm. O'Neil has numerous books that are commonly in libraries and here are the links to the titles of the books:
http://www.amazon.com/How-Make-Money-Stocks-Winning/dp/0070480176

http://www.amazon.com/Successful-Investor-Million-People-Profitably/dp/007142959X/ref=pd_sim_b_1/102-5065660-1618504?ie=UTF8

http://www.amazon.com/Essential-Lessons-Investment-Success-Techniques/dp/0071357548/ref=pd_sim_b_2/102-5065660-1618504?ie=UTF8

I realize there are many other ways to choose stocks to buy, but I still profess that I am not a guru. If you follow the rules laid out by the IBD philosophy, you will see you portfolio increase dramatically over time. The greatest thing in the world is to fax the portfolio you removed from your financial advisor and show him your quaterly profits.

Another question is how much to invest. That is up for you to decide, but let's look at a few things mathematically. Let's say you have $10K in your portfolio. What would you do? Invest in 10 stocks? 5 stocks? 4 stocks? 1 stock? Personally, I would invest all $10K in one stock. Why? Well, let me count the reasons why:

1. If I follow the IBD rules and cut my losses at 8% below my purchase price, I won't lose all of my money as my friends said I would.
2. With one stock, I follow one indicator such as the MACD and that is it.
3. I get comfortable with the fact that I will make and lose money. (The hardest thing to do is watch your stock go down and your portfolio dwindle.)
4. I will make more money trading one stock that goes up 25% than if 4,5, or 10 stocks go up their respective 25%. Look at it this way - 25% of $10K is $2,500 and I pay a $7 commission to buy and a $7 commission to sell. So my total profit would be $2486 after commissions. If I have to pay the same commissions of 10 different stocks, my $2,500 profit will be knocked down to $2,360. Don't forget commissions can and will eat into profits.

The next question is when would I start trading 2 stocks? That is up to your tolerance level. Like I said, you can make more money faster if you invest a larger pot o' gold rather than spreading out amongst many stocks. If you add on more stocks, you increase your stress since you now have to follow 2 stocks. Many of the websites that tout "You can turn $1,000 into $3.1 million in three years!" are rolling the profits over and over into ONE stock by buying and selling on certain signals such as the MACD. Are you willing to take that risk? As my confidence level is increasing with my selected buy/sell indicators, I am.