Trend Sigma
  trade the Big Run & smile  

Technology trends

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 management.

  • 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 stocks.

  • 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.

Forex   Under the millstones of the banks
Futures  Hoping for the trend and finding chaos
Options   Above average? You will still lose!
Stocks   The negative-sum game for investors

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