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How to beat the market?

thecoach

Contributor
Aug 29, 2007
125
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Regina, SK, Canada
So since we are looking for the 'fastlane' of doing things, what is your 'fastlane' way to investing. What have you done to consistantly beat the market?
 

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zaiteku

New Contributor
Read Millionaire Fastlane
Dec 10, 2007
112
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Honolulu, Hawaii
I guess for me, the way I beat the market is, I have it in my mind to not try and beat the market. I always feel I cant beat it, so I trade in a way that allows me to go with the flow of the markets and adjust to its movements. For me at least this has been the way to consistent profits. The market starts to feel like more of a tide that ebbs and flows, and when you feel you can go in either direction, the emotion gets less and less and you just sort of "go with the flow" if you know what I mean.
 

Colbey

PARKED
Nov 7, 2007
6
0
8
London, England
I’m still learning, but I do ok using a mix of technical and fundamental analysis (CANSLIM variant). I feel it is something you can learn to do, although just like anything else some have more aptitude than others (yes I also read RD forums).

I feel one of the most important things is to not be emotional, this can be really hard to avoid. Set targets for max loss etc when you buy.

Minimise risk. If a stock is going down and you don’t understand why, or its due to a panic its often safer to just get out and see what happens, you can always get back in if things improve.

Don’t make decisions based on tips, top 10 stocks etc, do your own research as its your money at risk.
 
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thecoach

Contributor
Aug 29, 2007
125
24
23
Regina, SK, Canada
right, that's obvious, but how do you know when it's reached it's low? or when it's reached it's high? Example....If you owned google stock when would you sell it at it's 'height'? When it hit $200? 400 bucks is pretty high? So was $500, $600 and $700? When it was at $400 did you determine that it was too high to buy? As it turns out it was pretty low at $400 as well.

Or do you just say, "meh, I've made a couple bucks, let's cash in"

What basis do you use to determine if the value of a stock is low enough to buy or high enough to sell....do you have a certain ratio or target that you use?
 

kimberland

Bronze Contributor
Jul 25, 2007
825
120
38
I'm a fundamentals gal.
I've never lucked out and bought at the bottom
(Jon, stop laughing)
and when I buy I expect to own it for at least a year.

What has interested me lately include
- stocks with prices less than the net book value
- income stocks on a (smart) buying binge
(investors bail 'cause they want the pay out
plus that first costly quarter scares the short term investors)
- U.S. stocks or stocks operating in the U.S.
(because of the exchange)

that sort of thing.

I usually prefer some sort of income
while I wait around.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
Speedway Pass
Aug 24, 2007
4,207
8,145
1,961
right, that's obvious, but how do you know when it's reached it's low? or when it's reached it's high? Example....If you owned google stock when would you sell it at it's 'height'? When it hit $200? 400 bucks is pretty high? So was $500, $600 and $700? When it was at $400 did you determine that it was too high to buy? As it turns out it was pretty low at $400 as well.
That's the trick...and if there were a simple answer that I (or anyone else) could post here, we'd all have more money than we knew what to do with...

Unfortunately, it's not so easy...

That said, there are two major strategies that successful traders employ:

1) Fundamental Investing: Basically, fundamental investing is the common sense approach to the market. You use the publicly available information to determine which companies will likely do well in the future (in financial and growth terms), but are currently underpriced based on their future potential. You buy these companies, hold until they are no-longer underpriced, and then sell. If you want to learn fundamental investing strategies, I would suggest reading a lot about financial statements and how companies are run/managed.

2) Technical Analysis: Technical analysis is based on the theory that underlying market movement are complex (and sometimes not so complex) sets of patterns that, if you have keen pattern recognition skills (and good technology), can be exploited for profit. Technical traders examine the historical market data (whether the past 5 minutes or the past 5 years) to determine patterns and then make a prediction on the near-term movement of the stock. Good technical traders (from what I hear) don't even need to know what stock they're looking at; they just need to see a chart and be able to do some statistical analysis of what they see to predict near-term price movements. If you want to learn technical analysis, I would suggest boning up on your statistics and picking up some books on technical analysis.

Hope that helps, and if I ever figure out a strategy for beating the market that can be explained in a couple paragraphs, I promise to post it here... :smxB:
 

kurtyordy

Bronze Contributor
Aug 28, 2007
2,375
279
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PA
Google is a great example of beating the market if you got in early, no matter where you stepped out. Timing the exact lowes and highs of stocks is a different topic than beating the market.

I beat the market by focusing on about 4 stocks. I learn their rythm, and then watch for dips to buy. I go up 20% or more, then I sell and sit in cash till there is another buy. This works best for me with options. The hardest thing for me is the to have the patience to sit on cash till the next opp comes up. My average annual return for the last 7 years is 65%, and that is with getting royally spanked this last month (broke my own rules and now am paying for it.)

Going back to google, if you starting tracking that for a few months, learning how it perfoms against the general market, and how it reacts to company news and market news, you will begin to feel its rhythm and know when to buy. For me it is that simple.
 

kurtyordy

Bronze Contributor
Aug 28, 2007
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I agree, my point is google more than beat the market, so you did not need to find the top.

Adjusting for risk? Use options. If your data is correct, buy calls. $500 investment, unlimited upside, downside. $500. Your risk is now completely isolated.

Why am I caught with my pants down right now? I violated this rule, and decided to by the stocks and sell covered calls. ahh such is life. I will just take the losses to reduce my taxes for this year.
 
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Edge

Contributor
FASTLANE INSIDER
Summit Attendee
Sep 20, 2007
349
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Kansas
Use options to buy low and sell high. After a move up sell gamma with negative delta. After a move down, sell gamma with positive delta. I think this increases your probability and risk:reward over trying to pick the top/bottom buying the underlying outright.

I've found that using options keeps me from hanging on too long since you are dealing with monthly expirations.
 
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TheGreatBear

Guest
I agree, my point is google more than beat the market, so you did not need to find the top.

Adjusting for risk? Use options. If your data is correct, buy calls. $500 investment, unlimited upside, downside. $500. Your risk is now completely isolated.

Why am I caught with my pants down right now? I violated this rule, and decided to by the stocks and sell covered calls. ahh such is life. I will just take the losses to reduce my taxes for this year.
I mean... if you go long S&P futures with 2:1 leverage, you might make twice what the S&P returns next year, but your risk-adjusted return is still market return...
 

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zaiteku

New Contributor
Read Millionaire Fastlane
Dec 10, 2007
112
7
27
Honolulu, Hawaii
Edge,

what do you mean by "After a move up sell gamma with negative delta. After a move down, sell gamma with positive delta"?

sounds all "Greek" to me! :smxB:

what do you look for specifically in laymen terms. I don't use the Greeks all that much, so Id like to get your take on how you use Gamma.

thanks!
 

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