In early 2003, shares of Denver-based Titanium Metals ( TIE) sold for the equivalent of $1.55 a share. Today, the stock fetches $77. During those three years, the stock has been terrific for buy-and-hold investors. But even if you didn't buy the stock early in Titanium's run, there were plenty of opportunities to make big profits with low-risk trades. Normally in this space I write about the multiyear investment opportunities that arise from corporate, political and economic events, such as the race by Boeing ( BA) and Airbus to build lighter, stronger, faster planes that has led to accelerating titanium demand. Today, though, I'd like to get down and dirty in the world of people whose investment horizons extend no more than a month or two: not red-eyed daytraders, but so-called "position" or "swing" traders who look for chances to buy stocks such as Titanium Metals for 20% to 40% gains, and then move on and find another. If buy-and-hold investors are anacondas, eating one big meal every few months, swing traders are tigers, hunting and killing once a week. How can you become a short-term tiger, while not abandoning your inner anaconda? It's really not that hard. You'll need four things: A willingness to narrow your investing universe to companies undergoing fundamental change that have stocks that trend well; a subscription to a decent online stock-charting service; a little courage; and an unswerving ability to face up to occasional failure quickly without remorse.
Demand PerformanceTo get started, let me make one thing clear. A lot of what you think you know about why stocks go up and down is right in the long term but wrong in the short term. Over long periods of time, companies that are undervalued in relation to their future growth prospects, and which grow earnings at a pace greater than the market's expectations, make great investments.
A Piece of the ActionWho are these buyers? Most often, they are large financial institutions. Mutual funds. Hedge funds. Pension funds. People with a lot of money. Duh, right? But there's more to it. Virtually all of these institutions specialize. For instance, they tend to concentrate on growth stocks, or value stocks, or small stocks, or foreign stocks. The greatest number focus on some shade of growth, but as a glib rule of thumb, the bravest and smartest of the most successful fund managers in the world focus on value. These guys can do open heart surgery on a balance sheet and find life where others see death. These are the guys who bought Apple Computer ( AAPL) at $10 three years ago, or Titanium Metals at $5. It's hard work, and you don't hear about all the times it doesn't work out.