Excerpted with permission of the publisher John Wiley & Sons, Inc.(www.wiley.com) from The StockTwits Edge edited by Howard Lindzon, Philip Pearlman, and Iyaylo Ivanhoff. Copyright (c) 2011 by Howard Lindzon, Philip Pearlman, and Iyaylo Ivanhoff.
I believe most people will never allocate the proper amount of time to learn how to trade, but all of us can invest. We live in spectacular times. You can leverage the Web in so many ways, especially around knowledge. You can Do More Faster (the title of Brad Feld and David Cohen's most excellent book on start-ups
John Wiley & Sons, 2010) than at any time in the history of mankind. Our community at StockTwits is ﬁlled with tens of thousands of traders, a global trading ﬂoor that collectively digests and shares prices, ideas, and news.
To catch a large basket of trends, one should start at the macro level and work to the micro level. My friend Ivan says this about trend following: "Short-term price trends are fueled by momentum, medium-term price trends are fed by earnings-related catalysts, and long-term price trends are sustained by social and business trends." It also makes sense to focus on your areas of passion. Doing the work necessary to catch trends will be easier if you are immersed in the work you love. And of course, selling is a discipline that must be honed. I am very mechanical when it comes to exiting positions. I have missed so many winners, and, as all investors do, I never own enough of the winners I do eventually own and ride. I keep on investing because I know a new opportunity is around the corner and I will get better at spotting catalysts that will lead to big moves. I believe that you should not worry about valuations or price-earnings (P/E) ratios for your liquid investments. Valuation matters when you can't sell a security. I don't think many investors or analysts can successfully determine forward prices. If they could, markets would be way more efﬁcient. Having a deﬁned strategy is all that matters. I am known as an "early seller," but I like the moniker. Being an "early buyer" is a moniker I seek to avoid. I used to trade and hire traders. Daily performance mattered. Now 10-year performance matters to me. I survived 10 years with pretty much my original limited partners in my hedge fund, despite making every mistake in the book. Daily performance anxiety is the stress of the entire ﬁnancial industry. It will never disappear. That stress is our opportunity. The louder and more active trading and Wall Street become, the quieter you should become. Technology will continue to make it possible for both sides to do their jobs, cheaper and faster.
I believe that if I follow my simple routine, the right stocks will ﬁnd me. Every Saturday morning, I go to www.stocktwits50.com to get a quick snapshot of money ﬂow and momentum. It saves me time. In 20 minutes I have a good picture of the momentum in the markets. During the week, I follow Joe Fahmy (@jfahmy), as well as @stocktwits50, @biggercapital, @ivanhoff, and @upsidetrader. Discovery is a fantastic feature of today's social Web platforms, so ask others on the StockTwits streams whom they trust. New voices are constantly surfacing. I check Techmeme at http://techmeme.com and Abnormal Returns at http://abnormalreturns.com and scan the headlines and read many stories. By doing so consistently, you will start to pick up the company and ticker symbols that entrepreneurs, angel investors, ﬁnancial bloggers, ﬁnancial journalists, and hedge fund managers are talking about. I read venture capitalist Fred Wilson at www.avc.com, Brad Feld at www.feld.com/blog, and TechCrunch at http://techcrunch.com as well.
Once a stock reaches a new all-time high, I start to follow it. I always do my homework and if I ﬁnd a strong catalyst that is likely to sustain the price trend, I buy. I will never pay the lowest price and sometimes do pay the highest price, but I won't let one bad stock or investment wreck my life. There will be times when investing seems easy, but do not confuse a bull market with brains. There are times when most stocks go up as fresh money enters the equity markets and higher prices boost risk appetite.