I wish there was a magic formula for investing. I wish I could tell you that you will never suffer a loss and be left with a helpless feeling of not knowing what went wrong. Sadly, I can't. What I can offer is a method to stay invested. It comes with no guarantees of extraordinary gains, only the probability it's more likely to achieve your goals long term.
Have a process.
Make this process your own. It can include anything, technical indicators, browsing 10-k's on a Friday afternoon, balance sheet dissection, conference call study, whatever it takes for you to have a method to your investing. I'd also advise to sprinkle in a dose of common sense.
Over time you should be able to find a method that, if nothing else, keeps you from suffering great losses. I'll let you in on a secret. The best way to achieve solid investment returns is to avoid huge losses.
On a dry erase board above my desk, I have four simple phrases written down. They represent part of my process.
1. The "Good Enough" is the enemy of "The Best"
2. What do you like and why?
3. What will the world look like in 5 years?
4. The most important things don't revert to the mean.
I like to remind myself of these principles. These are mine, but you should have something similar, whether its written down or not.
Here's another tip. When you buy or sell anything, write down in a journal why. It takes five minutes but can be very helpful later. When you're ready to sell a long, consult the journal and see if the original reason or reasons you purchased the stock have changed.
Maybe you bought on momentum, a CEO change, a new product, it can be helpful to remind yourself what piqued your interest in the first place. Special note here, "it was going up" isn't a real reason. You can do better.
Over time you will find a process that works for you. It's invaluable. The folks that panic sell (or panic buy for that matter) don't have a real process. They are reacting to price. Try not to get caught up in the noise.
Inevitably, you'll hear all kinds of false tells during any given day regarding market action. "The breadth is weak," "volume is low or high," "there's too many new lows." "We need this sector to confirm." It's pretty ridiculous, to be honest. I routinely see acronyms and abbreviations that I have no clue about. Previously, I would look them up. I've tried to forget most of them.
I've never held a Yuan in my hand so I'm not exactly sure how "the fix" affects my Verizon long position, probably because it doesn't. My "fx concerns" begin and end with the strength of the dollar. Sorry, Brazil. I also don't think it's going to help me too much to factor in a "Brexit" to my portfolio. Surely, you can come up with some of these on your own.
Try to take a more sensible, repeatable approach that you can get your head around. Here's just a simple example.
Let's say you are long Costco because you like its model of membership fees and providing a good value proposition to the consumer while offering a differentiated shopping experience. Over time you believe it could take this concept all over the world.
Now let's say Costco reports SSS one month of 5% when the market was expecting 6% and it sells off 2.5% that day. Are you wrong or is the market possibly overreacting to a single data point?
Conversely, let's say Costco pushes through a membership fee increase of $10 that pushes revenue to an all-time high but after two quarters you notice that membership growth has leveled off or even is declining. However, the stock is hanging around the same level it was before the membership increase because revenues are still growing. Should you hold?
Your process will evolve over time. Don't beat yourself up over mistakes, just avoid making the same one more than once. If you can do this, by the way, please let me know how. Personally, I like strong management and growing revenues as part of my criteria, though I'm willing to make exceptions if sentiment is overly bearish.
Spotting a trend early helps of course. One that continues to work is Athleisure. Interesting that no one seems to take that a step further. How about looking at declining sales of suits and slacks? How's Men's Wearhouse and JOS Bank doing again? Victoria's Secret, Gamestop, Foot Locker, are all located in the mall and seem to be doing okay, yet the mall is dead because anchor stores that sell a lot of -- wait for it -- dress clothes seem to be losing sales to Amazon. We'll see, I guess.
Accepting the premise of "the mall is dead" would keep you out of some good stocks without looking at them through your own process.
A process should also offer perspective. On an up day in the market it's easy to feel gratified; on a down day, depression and doubt can take hold. Reality is often somewhere in the middle. You'll lose your mind focusing on a particular index or gyrations that last 20 minutes and are caused by a single headline.
Your individual stocks selected through your individual process should withstand any market "melt up" or meltdown. If the story changes, you can change your mind, but this rarely happens in a single day. Have a simple repeatable process, you'll thank yourself later.