4 Ways to Pick Your Investments

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There are four primary ways you can use to pick your investments. Each is substantially different from the other and while you may think you can mingle them, selecting one method to choose your investments works best.

The four ways to pick your investments are (in my preferred order):

1. Technical Analysis
2. Fundamental Analysis
3. Newsletter Subscription
4. Personal Choice

I suggest Technical Analysis first for a variety of reasons, particularly:
• Eliminates or reduces emotion based decisions.
• Requires minimal time, just 30 – 60 minutes a week with the right software package.

Technical analysis involves analyzing the price movement of a ticker symbol to forecast its future. It works just as well with mutual funds, stocks and ETFs. When used with rules or parameters to decide when to sell, the potential profit gains can be both quick and substantial. This method can be used for short term investments of just months or long term investing where a position is held for many years.

Fundamental Analysis involves looking into a company’s management, evaluating its profit and loss statements and balance sheet besides its products or services plus reading research reports. This is the method used by famed investor Warren Buffett. Fundamental analysis can take anywhere from weeks to months to evaluate each company before a buy decision can be reached. This method is best suited for those with lots of time and for those investing for the long term with no need to see substantial gains in months or even a few years.

Newsletter subscription means you will take the advice of someone else, a newsletter writer who makes buy or sell recommendations. There are hundreds of investment newsletters. There are conservative and aggressive newsletters; there are pessimistic (bears) always predicting a market decline and optimistic (bulls) always saying the market will be going up.

Every newsletter writer will tell you he predicted this or that and with his suggestions you would have reaped enormous gains. They all say this even though they almost all disagree on what to buy.

I know a writer who claims he predicated the market crash of the recent recession. The catch is that he predicted it every month or every other month for five years. If you had taken his advice you would have totally missed the bull market of the last decade.

Personal Choice is the other method of choosing your investments. I call it Personal Choice out of kindness. In reality it should be called Emotional Choice. Let me explain:

Many years ago I decided to buy Northwest Airlines. Why? Because I had flown more trips on Northwest than any other airline and I read good comments about them in the Wall Street Journal. And when I sold my shares I made a decent profit. But a few years later I decided, well I profited from them once before so I should buy them again. And so I did. This time though I lost money and my loss was greater than my original gain of a few years back. That is emotional buying.

Emotional buying can be based on tips, your friend’s advice, your kid’s favorite toy or just because you had a good time at the movies.

Get it. I don’t recommend buying on emotional, personal choice basis. This is gambling and while there are winners in gambling it is the casinos that make the most money.

Which method you choose to make your investment decisions depends on just a few factors if you are serious about making money in the markets.

• How much time do you have to manage your investment portfolio
• How much control do you want over your investments

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