Becoming a Complete Trader
Team, I’m not sure if anyone caught Mad Money last night where Jim featured AT&T as a longer term breakout from a solid base.But the stock is indeed breaking out today…and this week.
This is not a high-volatility stock. It’s a bit of a slow mover. But the dividend is high relative to other Dow stocks, and that high dividend (which, by the way, pales in comparison to jan’s long list of yield hogs [Memo to self: I must update that list because jan has mentioned many more that work]) is likely to provide an underlying bid to the stock. Money managers like a couple of things: First, a well-known, blue chip stock in a strong industry. Second, steady dividends to keep their clients happy and that they can use to justify owning the stock. AT&T has both.
Like IBM, I think T is a long-term hold. I’ll feature it from time to time, but I’ve noticed that the stocks I feature the most are the stocks that seem to be flipped the most. It’s fine to have a portfolio where you flip stocks — the “fast money trades!!” But you’ve got to have a good stable of stocks, just like any business has a good staff.
Gotta stop trading in absolutes, and start trading in segments. In other words, don’t make it an “all or none” proposition. Some of you have really small trading accounts.
Fine. So did I.
When I started, I had $18,000 (which was actually much higher than many here.) I began by piddling around with a few little stocks. Back then, commissions were much higher and I wasn’t even treading water. Then I started making big bets…putting ALL of my money in one stock that I thought would double! Um…can you say “stupid”? Sure you can.
I’d wind up selling on a garden variety pullback because I was too big in that stock, too emotionally invested, and too risk averse. So I sold when the pros were buying.
All the while, I knew I was trading wrong…but I told myself that once I doubled my money, then I’d start trading right. (Is anybody reading this and thinking that I’ve crawled inside your head?)
But finally,…finally…I realized that the constant flipping was costing me both money and missed opportunities. I was paying too much in commissions, and I was taking small profits on great stocks…only to lose sight of them as they went on to…double!!!
This sad tale of trouble and woe is repeated by many, many traders as they come into the business. I think that you’ve got to split the difference!!! You take a portion of your account to pay homage to that little part of every one of us who likes to “take a shot!” It keeps the “game” interesting. Keeps you thinking, developing, learning…and ultimately leads you to a much deeper level of self-awareness than most of the robots walking the streets thinking about people and things rather than ideas and possibilities.
But you take another portion of your account and put it in long term stocks. Forget about the ebb and flow of the stock! You think Annaly Cap (NLY) is going to do well in the coming years? Then buy NLY and let the stock work as the company works. You worried about the collapsing dollar as we continue to grease the printing presses with WD-40? Great! Then buy some UDN and let it ride! Don’t trade it! Instead, protect yourself from inflation by making a bearish bet on the dollar with some of your cash. If nothing else, it will keep you in sync with what is happening.
So strive to be a complete trader. That means having multiple and variable timeframes. Don’t get caught in a rut! Challenge yourself. Frankly, most of you know EXACTLY what you are doing wrong! You just haven’t been hurt badly enough to get the gumption and motivation to stop doing it! In the “strange but true” category, you get pleasure out of causing yourself pain. You buy pain because of the pleasure and elation you get from taking action.
Admit it — You know I’m right.
–Dan
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