"What was I thinking when I bought that pig?"

How many times have you asked yourself that question? Don't worry, you're not alone. It's an all-too-common lament among individual investors, whose portfolios are often littered with these losers. Almost as bad as the financial hit is the nagging related question, "How could I have ever been so stupid?"

Today, we address that issue. Included in our discussion are two basic tools that will help you look back and understand your own thought process, and the analytical steps you took -- or failed to take -- before buying that sow. More importantly, this process can help before you buy the next pig.

The Best Constantly Improve

Developing a way to both evaluate and improve your performance is one of the most important skills any investor can have. Yet far too few individuals have a mechanism by which they can review their stock picks, evaluate their trade management and assess their market calls.

This is a pity. Constantly reviewing your trading, recognizing what went wrong -- and right -- and adjusting your methods on the basis of what you learn is one of the simplest ways anyone can improve their skill set.

Reviewing strategy for weak spots and making incremental improvements is especially important for the Apprenticed Investor -- someone in the early stages of developing methodology. Indeed, fine-tuning your investing approach should be an ongoing process for all market participants. If you want your strategy to be competitive -- and have the returns to prove it -- you must constantly evaluate and refine your approach.

Today, we are going to outline a three-step approach:

  • Serializing your pre-purchase thinking.
  • Regularly reviewing your trades and existing holdings.
  • Adapting what you learn to your strategy.
  • The Trading Diary

    One of the best ways to evaluate your stock purchases, as well as their subsequent market performance, is to keep a trading diary.

    The key idea is to do more than merely track your returns. Dozens of Web sites can do that for you, as does your monthly brokerage statement. Our goal is much more comprehensive. We want you to create a paper (pixel?) trail, memorializing your thought process prior to your purchases. More importantly, you need a way to evaluate -- after the trade -- what you could have done better.

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