Deciding to switch my investing strategy was no easy task. Swing trading on sentiment and a few technical factors after the stock either gapped up or down wasn’t a bad strategy. It helped me learn the nuances of the market, develop a solid foundation of investing knowledge and, most important of all, it made me money. But,
My Old Investment Strategy
My swing trading rules allowed me to initiate a position when the perceived exit point at the time of purchase was within one week to 3 months. The primary goal of that strategy was to find a stock that gapped down in pps due to sentiment, initiate a position and ride the wave up as sentiment selling died off and the buyers came back. Sounds perfect in theory right? Well, not so much. There were a few drawbacks that left me reevaluating the way in which I should be investing my portfolio.
One of the main drawbacks of my old strategy was the amount of time I need to allocate. Finding a stock that gaps down is only the first step. There are a number of other steps that need to be taken after that before you can safely pull the trigger. You need to learn about the company, what caused the gap, dig into the fundamentals, learn about the sector and evaluate whether this was due to sentiment or a fundamental flaw in the future trajectory of the company. Not exactly feasible when you work a 9-5 and want to allocate your free time to other pursuits and enjoyments.
Personally, I’m not a proponent of stop losses. I would rather trust myself to not make an emotional decision rather than set a hard and fast number where an order is automatically placed. Sure, I kept mental stop losses, but those were more like guidelines. There are times when a stock might fall below your “stop loss” but all the signals point to just extending your timeframe and pushing your exit point forward rather than selling and taking the loss.
On the flip side, not using stop losses required the mental fortitude to take on huge downswings in the hopes, sometimes gamble, that the trend would reverse. At this point in my life, I’m willing to sacrifice a few points of growth for a less stressful investment strategy.
My New Investment Strategy
The identification and evaluation of these pain points was the primary reason I shifted my strategy to initiating more long term positions in dividend stocks. Dividend growth investing provides a way for me to minimize my risk while also allowing me to shift to a longer term point of reference as I initiate positions. It’s no surprise this shift corresponds with increasing time commitment from other aspects of my life. I truly believe it’s important to constantly evaluate your life and aim to coincide your investments with the time and energy you can allocate towards managing them.
Moving forward, I plan on using this blog to identify, evaluate and record my investment strategy, transactions and performance. This will serve as a form of personal documentation as well as provide insight into my experiences that others can learn and utilize with their own portfolios.