About a year ago, I attended a local AAII Meetup with guest speaker Dr. Eric Wish. I learned so much from Dr. Wish, and sought to put some of his practices into use. I had much more success with my investments than ever before applying some of the things I learned from Dr. Wish along with some of the books he recommended on his blog (wishingwealthblog.com).
The biggest change for me, was that I used to primarily invest in shares that I considered to be at bargain prices. Specifically, I looked for stocks rated as “5 stars” with “wide moats” by Morningstar. I especially focused on companies that paid dividends at or above the average rate for the S&P 500. However, I seemed to find that stocks that became a good value (5 Star Rated) often went on to become much better values! I learned what the saying “catch a falling knife” meant. So I started looking for ways to find better entry points to increase the chances that a company that looked like a good value was done falling in price and had a greater probability of price appreciation. I did have greater success with this, but still found that shares would often continue their downtrend after a brief trend upward.
At the beginning of Dr. Wish’s presentation, he asked the question of the audience “would you consider investing in a stock that was trading at an all time high?” I don’t know about others in the room, but my answer was “no” because I thought it would be likely to be overvalued and have a high probability of pulling back. However, one thing that Dr. Wish said that made sense to me was that when a stock is trading at an all time high, there doesn’t exist a supply of shares that were purchased at higher levels owned by investors that just can’t wait to get back to even and sell. That struck a chord with me because I have seen that happen time and time again. I would buy a stock that had fallen to some level that I thought represented a bargain. If I was lucky enough to see it start to rise, it would invariably meet some level where a bunch of sellers came in to the market and pushed it back down.
For this reason, I started studying Dr. Wish’s approach and personalizing it to make it my own. So far, I have used these ideas in different combinations, and somewhat haphazardly. But over the next few days, I will detail some of the techniques that I learned as I try to put together an overall trading plan utilizing these techniques.