Just as quickly as the year started, my 4 stocks for 2011 tanked. I finished down 33%. Instead of sitting here and trying to make excuses for what should have been, I thought it would be more educational to clearly state where I went wrong and steps we should all avoid when trying to pick long-term stocks to invest in.
1. Follow your rules. The interesting part of this whole article is that many of the rules I broke I recently just shared with TWI readers in my report - How to Gain Double Digit with Your Stock Portfolio - before coming up with my picks for 2011. In other words, I did not listen to myself. Know your rules and stick with them.
2. Don’t be cocky. After a hot 2009 and a nice 2010, it is safe to say I was probably a little too cocky going into 2011. After all, everything I touched seemed to turn into gold, right? Well my clouded judgement misguided me and I ended up taking risks I normally do not partake in.
3. Don’t put all your eggs in one basket. Going into 2011, I placed a huge bet on oil. Whether that was a good or bad bet is a pointless argument at this point. The problem is that I put myself in an all or noting situation when 50% of my stocks had some sort of exposure to that commodity. While it might seem boring to spread your money around, when playing a long-term game it can mean the difference between an alright year and a disastrous one.
4. Avoid stocks with monster gains in the previous years. The law of gravity simply states what goes up must come down. A version of that law should be utilized by traders. While stocks won’t necessarily fall all the way down to $0, uptrends do not last forever. If your stock has already gone up 50%-plus in the previous year, do you want to take the risk that it could do another 50 from there?
The most important point to take away from all this is to stick with what you know. A good rule of judgment to use in stock trading is the longer the time frame, the more you should know about that company and how it actually works. This is how you actually determine whether your company is just going through a minor speed bump or doomed for failure.
Competing Blogger Rankings
|Rank||Site||YTD Return (%)|
|1||Dividend Growth Investor||15.36|
|2||Million Dollar Journey||3.12|
|4||Money Smart Blog||-9.55|
|5||Where Does All My Money Go||-17.04|
|6||My Trader’s Journal||-19.00|
|7||The Financial Blogger||-21.73|
|8||The Wild Investor||-33.34|
|9||Beating the Index||-44.08|