How to exploit trends of new technolgies and stock trends in that niche? An overview of Fred Hager's methodology:
Invest in companies that are leaders in their niche and have the
potential to grow at over 20% a year, strong balance sheets,
proprietary technology, transparent accounting practices, and quality
Invest with money that you are not going to need in the next
three to five years. Due to the volatility of technology investing,
and the swings that we will experience, having to pull money out at
the wrong time will severely hinder your long-term performance.
Part of my plan is to purchase a relatively small number of issues.
Each company must be a market leader in its niche. I must be able to
purchase the stock at a reasonable price. Caveat: you may disagree
with what I consider reasonable. The security must have the potential
to appreciate 35% per year over the next three years. The stock must
have the potential of becoming one of the next generation's growth
There is another school on Wall Street that adheres to another Wall
Street adage: buy high, sell higher. In my opinion this makes more
sense for many reasons, both fundamental and technical. If you search
for your buy candidates among new highs, you will invariably stumble
onto companies that have exciting fundamentals, turnarounds, new
management's, new products and new markets.
In his excellent book, How to Make Money in Stocks William J. O'Neil,
the founder of Investors Business Daily and a legendary investor
himself, tells how he came upon the strategy of buying new highs. I
highly recommend his book. I believe it is one of the best book you
can find on the subject. I disagree however with his advice of
selling when a stock you own drops 8% below your purchase price. This
approach would have gotten me out of my big winners.
The caveat here is, of course, if you buy a stock at a new high you
have to know what you are doing. The new high puts the stock
technically into the right position for a move up. Now you have to
make sure that the fundamentals justify your investment. Some new
highs are near the end of a trend. It is usually easy to identify
those overvaluations. Nothing grows to the sky. You must be careful
though, if a stock has had a high multiple for the last five years
and its earnings are growing fast, you can assume that the stock will
have a high multiple in the next few years.
Do not be afraid of high multiples that investors have put on good technology stocks.
Have a strong gut and the will to endure the swings in the market.
Avoid the noise of the market and focus on the fundamentals of growth.
Market timing is never directly considered. Indirectly, when selling
positions when they get unrealistically high, there should be a
tendency to be less exposed when a bull market turns.
Stocks are carefully chosen for the long-term. The ups and downs of
the market never bother me.
Remember, disciplined investing means not just selling at the right
time, but also managing your investment objectives rationally, which
can be difficult with technology investing, and the volatility.
Under the millstones of the banks
Hoping for the trend and finding chaos
Above average? You will still lose!
The negative-sum game for investors