FROM PHONE SERVICES to floor cleaners, my office gets 10 calls a day from people selling something. But just because it’s offered doesn’t mean you should bid. There are a lot of companies I like and a lot of stocks I think look promising. That doesn’t mean I buy them. To paraphrase Gordon Gekko, I look at 50 deals a week. I choose one, and then watch it like a hawk.
In trading, as in most games, the best advice is usually the simplest. Not just because it’s the easiest to remember, but because it works. And I never got a hit at bat or made a dollar in the market before I started adhering to one simple principle: Keep your eye on the ball. What most people don’t realize is that 90% of “trading” is watching. I’m a trader, but there are many days I don’t make a single transaction. And when it seems the whole world is kibitzing about Greenspan or the gross domestic product, I do what I always do: watch the market and watch my stocks. In my experience, the best indicator of the market is the market — not the pundits, not the analysts, not the media, not the Fed, not hemlines or the stars.
That’s why it’s vitally important you follow your portfolio’s prices. The occasional earnings-inspired blow-up aside, the big moves don’t happen overnight, but develop over time. Meaningful trends take weeks or months to unfold — they don’t simply materialize out of nowhere. The Nasdaq didn’t drop 60% overnight, but over the course of a full calendar year. Nobody can say they didn’t have ample warning. If you’ve been long the major liquid names, you’ve had plenty of opportunity to get out. But you had to be watching your holdings — and you had to have the guts to get out. (more…)