As a part time investor I like using a buy and hold strategy. If I made trading a full time job I would learn quantitative analysis and sit and a computer all day buying and selling on small movements in the market. It’s probably a good thing I don’t invest full time because I don’t know if I have the nerves to do that. Instead I just focus on a stock fundamentals and letting my investments mature.
Specifically, when I look at a companies fundamentals I am looking for value. Value can be determined by looking at the Price Earning ratio, or P/E. P/E is derived from the currently listed stock price and the current quarters reported earnings per share. A stock listed ar $100 and an earning per share of $10 would have a P/E ratio of 10.0. When screening for value stocks I am looking for P/E of under 20. My target sell price is a P/E above 30.
Additionally some stocks are considered growth stocks. They will either have very high P/E like Amazon, or not even listed as their earning are currently negative like Tesla. My Acorns account holds ETF’s in the growth market. My Robinhood account is where I pick my stocks based on value.
- Understand how the companies you invest in makes a profit.
- Decide on length and risk exposure you are willing to handle.
- Learn stock fundamentals like prices, earnings per share, volume, market sector, and competitors.
- Plan around value and potential growth.
- Have an exit strategy.
- Diversify but don’t over do it. I started with a basket of 3 different companies and have slowly been building from there. You do not want to start with one of everything.
As a final thought selling when a stock is performing poorly despite good fundamentals is usually ill advised. As long as the company isn’t going through a crisis stock pullbacks are the best time to buy. It lowers your cost basis and increases your earnings potential if you are a buy and hold investor.
Good luck and please respond in the comments with your investing strategies!