Stock Video!

Watch the Loonie to Toonie Stock Video!

Finally! My stock video is ready for the world – specifically the world of people interested in reading stock charts, which I believe is a small, yet growing world. My hope is that one day, reading charts of investments is no longer a practice unique to investment pros, but a basic skill that we all have.

You can hit it big in stocks without ever having to read a chart, but for me, it’s key to my decision process. I created this video to provide a more visual supplement to all the information that I’ve been sharing on how I find and select stocks. 

I’m often asked where to find stocks. I feel it’s important to not only tell you where I find stocks but how I decide on which ones to pay attention to. I hope this helps you in your investment endeavours! 

Stock Picking – Part 2: Determine Your Investment Goals

Part 2: Determine Your Investment Goals

Objective: Identify your investment objectives first, and then let them guide you when you’re choosing a stock.


The main objective for investing in anything is to make money. With stocks, you make money two ways by selling your shares at a higher price than you paid and from dividend payments. Additionally, your decision to invest in a stock could be supported by a number of other reasons. Such reasons will guide you in the selection process.

Here are some reasons to buy a stock:

  • To fund your retirement 
  • For faster portfolio growth
  • To generate dividend income
  • You see potential growth in a particular sector, so you want a good stock from that sector
  • The economy is looking to slow down, so you want to invest in a defensive stock
  • The economy has been in a slump for a while but now business activity is starting to pick up, so you want to buy stocks to get in on the action
  • You like a company for its products, services, or growth potential, so you want to be a shareholder.

My investment objectives vary as I want to invest for the long-term (a fun and comfy retirement life) and the short-term (concerts, trips, and buying a couple of properties in Canada and somewhere hot).

For my retirement portfolio, it’s all about the long game and I’m looking to invest in something that will do me well for years, even decades. So, I look for stocks that have ‘blue chip’ qualities: they pay dividends, they’re well-known, well-established and have been around for a long time, and they usually offer more than one type of product or service which allows them to adapt to various consumer demands and trends. It’s also a bonus when the stocks are in defensive sectors such as utilities and consumer staples. I don’t do much analysis here, I apply a very basic, rudimentary logic.

There is no guarantee these stocks won’t suffer when the economy is slow, but the idea is that even during tough times, they’ll do better or suffer less, and they’ll still likely pay you dividends. If their stock prices take a hit, I’ll likely buy more shares when they start to recover because they’ll be cheaper.

For my swing trades, I look for stocks that look like they’ll do well over the next few months to a year. I look for typically strong stocks that have been quiet for a while and haven’t seen much trading action. When this happens, it’s usually because their sectors have also been quiet. If all the stocks in a particular sector have been down for a while, I’ll narrow down my selection based on the stock price and volume. (See Stock Picking – Part 1.)

The selection process for my swing trades is more involved as I use a very basic form of technical analysis of a stock’s price history to help me decide on where I’m going to buy and where I’m likely going to sell. Technical analysis is about analyzing the price history of a stock in relation to its trading volume, sector, and market environment. 

Many people dispute the validity of technical analysis and prefer to examine the fundamentals of a company’s value in relation to its share price instead. They’re all valid to some degree and many financial pros analyze both the technical and fundamental information.

I prefer to analyze charts because I’d rather see if I’m paying much more than others who got in earlier than me. The lower the price I pay for a stock, the more confident I am in the trade. It’s not a guarantee that the price won’t go lower, but even if it does, I will suffer less by getting in at a lower price than if I bought a stock after it became hot and expensive. I never buy a stock after it makes the news because it’s usually too expensive by then.

chart-1d

Above is a very basic chart of a stock that I actually own. I consider a stock to be ‘quiet’ if it’s trading sideways (the first horizontal line). Think of a stock’s price in terms of flying in an airplane; trading sideways is like starting on the runway. I try to buy either when it’s still on the runway or just as it’s taking off (no higher than where the airplane is). So I just have a quick glance at a stock’s chart to determine if it’s just taken off or if it’s gone far beyond the clouds. If it has long taken off already, I’ll just wait for another sideways setup. Sometimes this wait time could take months to years and I’ll just keep checking the charts every now and then.

For years, I’ve been using freestockcharts.com to look up charts for Canadian and U.S. stocks. It’s FREE and the features and tools for the charts are very similar to what you would use if you had a pro trading account with a brokerage. To look up a stock, you just type the company name and you can select it from the list of options it provides. Sometimes a company will trade on both the Canadian and US stock exchanges, so be sure you’re selecting the proper exchange for you. There are many short and informative tutorials available on its site and on YouTube.

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I look at the charts for everything I buy for both long-term buys and shorter-term swing trades as my goal is always to buy shares at lower prices. For the long-term trades, it’s more important that the stocks meet some ‘blue chip’ criteria. For the swing trades, I rely more on technical analysis, the sectors, and the markets.

Next time, I’ll get into how I analyze sectors and markets!

 

 

Stock Picking – Part 1: Looking for Stocks

You can decide to buy a stock using very basic logic. It can be as simple as, “My bank is great. I’m going to buy its stock.” And there you go, you own a dividend-paying stock. Those who want to build a more diversified stock portfolio seek more information and try to pick stocks using some strategy.

My process for picking stocks is quite simple and involves less information than what is required by trained financial professionals. I don’t manage other people’s money, only my own, so I’m less stressed out about aligning a certain number of factors before buying or selling a stock. My strategy is quite loose in form, but I feel that being rigid will lead to over-analyzing and worry. I’d rather be relaxed and let my trades work when they do because if I panic or get too excited, I’ll sell them too soon.

With stocks, I operate on different time frames. I sometimes day trade, and I always close the position within a day or less. My main thing has become swing trading, which means I’ll hold a position anywhere from over a day to a few weeks or even a few months. And then I’ll do real investing where I’m looking to hold a solid dividend-paying stock until I retire.

I don’t recommend that anyone day trades, it’s a far too risky way to handle your hard-earned money and it’s not investing at all. It’s gambling. Many might argue that swing trading isn’t investing either, but it depends on how you look at it. I see it as shorter term investing. Your level of involvement can vary from being very active by watching stocks and the markets, and managing your trades all the time, or you can be more hands-off and just be willing to do such things occasionally. I’m very hands-off with my swing trades. Most of what I’m going to be talking about is related to how I pick stocks for swing trading.

I need to declare that when it comes to managing my money, I have a higher risk threshold than the average person. Over the years, I’ve enjoyed big wins and suffered abysmal losses. My confidence comes from years of experience, training, research, lessons, trade analysis, and self-examination. I’m finally in a place where I’m quite happy with my stocks and current strategy. I’m also happy accepting that if the markets change, I might have to adapt my strategy.

What I’m revealing here today is just to share my method among the curious, not to teach it or to say this is what you should do to make money. My only hope is that you’ll pick up some good ideas and know how to apply whatever is useful to your own decisions.

Just remember that there is no fail-proof way to invest, nor is there one way to make money from investing. Investing is just one aspect of personal finance, which is how you manage your money and make financial decisions. I feel that the other aspects related to personal finance — working, budgeting, managing debt, and saving — are just as important, if not more.

I’m going to break down my explanation into parts. Each part will be blogged separately over the next few weeks.


Part 1: Looking for Stocks

Objective: To find major stocks that have higher trading volume


Canadian Stocks: 

I look for stocks that trade a lot in the TSX. I narrow the search process down by looking at the larger stocks in the TSX that are listed in the S&P/TSX 60 Index or the S&P/TSX Composite Index. If you click on those links, you can see the index’s stocks under ‘Constituents.’ If you don’t know what an index is, it means you haven’t read my book yet! You can still refer to the Terminology page for quick reference.

I like stocks that have the higher daily trading volume which means the number of shares bought and sold in a day. So with TSX stocks, I’d like them to trade at least 10K shares a day; the more the stock trades, the more interested I am in it. My TFSA is less funded than my other trading account, so I tend to look for Canadian stocks that are under $20, preferably under $10 so that I can buy more shares.

Rarely do I buy stocks that trade on the TSX Venture Exchange, but if it’s for stocks in a relatively new industry (like cannabis), then I’ll buy the from the venture if it meets all my requirements.

US Stocks:

I use the amazing Screener feature on finviz.com to find US stocks. For free, you can customize different search requirements and save those settings. I’ve created different “presets” for finding current financial stocks, tech stocks, oil stocks, pharma, transports, etc., that suit my preferences. 

The one common feature I use in all my searches is “Average Volume,” so I usually prefer US stocks that trade over 500K shares a day. Some people look for stocks that trade much more, some are okay with less than 500K. If I have too big a list, I’ll also add “Current Volume” to the search criteria and I’ll select over 1M shares because it means it’s currently trading a lot more than its average volume and something unusual could be going on with those stocks.  

I usually look for US stocks that are over $5 in share price, mainly because the higher-priced stocks often, but not always, move more in price so I can make a decent profit in a shorter amount of time. I have more money available in my US trading account too, so I’m able to shoot for higher-priced stocks.

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So that’s basically how I find stocks. I try to select from more popular, higher-volume stocks from the major stock exchanges and I narrow down my selection using preferable price criteria. 

Next time I’ll discuss my process for narrowing down my choices. Stay tuned!

Reading Price Charts

XICAt first glance, it looks like the outline of a mountain range, but it’s a price history chart of an exchange-traded fund (ETF) which is an investment fund that trades in the stock market. There are many different styles of charting with a variety of analytical tools and measurements that you can apply to these charts to help predict the price direction. You can look at the price chart of any investment be it a stock, ETF, mutual fund, etc. There is no sure way of predicting price movement, but I find it useful to examine previous and current trends before buying any stocks. Today, I just want to go over what I see when I look at this chart because I’m interested in how the Canadian stock market is performing.

This ETF is the iShares S&P TSX Composite Capped Index Fund. This ETF trades on the Toronto Stock Exchange (TSX) under the ticker symbol XIC. It currently has shares of 235 of the largest TSX stocks. Looking at the price history of this particular ETF will give you a good idea of how the Canadian stock market is trending. There is a number of other similar market ETFs, but I like to look at this one. So what do I make of this?

Let’s look at the chart below. I drew some trendlines on the chart to mark the trend directions.

XIC with TLsA: Since early May last year, the market has been on a decline until the end of the year. There were big drops in August and September, followed by a bit of recovery in October. Despite these efforts to go up in the fall, the market maintained its downtrend from spring until the end of 2015.

B: This pessimism in the market was punctuated by a rapid sell-off in late December to mid-January. Has the selling come to an end? I would need some confirmation first before I buy any new stocks.

C: Since mid-January, the market has been recovering. It was only interrupted by a sharper drop in mid-February, but never quite hit the same price lows that we saw in January. This is often a positive sign confirming a turnaround and a good time to buy stocks, which I did myself. The market has been trending upwards since. It’s now the end of April. Will the market continue to go up from here?

Let’s look at this chart a different way. Below, you can see that I removed the trendlines and I drew a horizontal line to look for areas where the market might find difficulty moving through.

XIC with Line

I can see that in October last year, there was a lot of trading around the $22.00 area. I drew a line from there to where we are today. Interestingly, we are currently trading in the same price range.

For investors who bought shares in January and February, this may be a price range that they targeted their investments to go. They might decide to sell some of their shares here or hold on and wait for the trading to occur above $22.15 before they buy more. Will we go up from here?

There’s a popular saying, “Sell in May and go away.” This refers to a lessening of equities investing as we enter summer and this goes until the end of October. It is also worth considering that on June 23, there is a referendum among UK citizens that will determine whether or not the UK will remain an EU member. I think that whether or not the ‘Brexit’ will happen, the results will impact the overall market which could send it much higher or much lower.

My Own Trading

Since February, I had been systematically selling half the shares of the stocks in my portfolio that had doubled in value. I will keep a watchful eye on my stocks to see if they’re prone to a May sell-off or possible market shifts in late June. I’ll either stay in these stocks going forward or sell the rest of my shares depending on their performances.

I trade stocks in the short-term to make quicker profits. Sometimes this is a good plan, other times it means missing out on enjoying bigger profits because I got out too soon. I realize that shorter-term stock traders like me are considered by some as market parasites, that we’re only there to profit from smaller price movements and our money adds no real value to a good company’s stock. This sentiment does not hurt my feelings–this girl’s gotta eat!

True investing differs from just trading: it means being invested for the long haul–you buy shares of a company you respect, receive dividend payments, and you watch its value rise over the years. I do have a few of these too–for these stocks, regardless of what happens from May, I’m all in and for a long time. I may even buy more shares of these stocks in the future if I see good opportunities in the market and in these stocks’ performances.

There are also critics who think that analyzing price charts is just as effective as using tea leaves to make predictions. I don’t totally disagree with this opinion as I simply can’t predict anything with absolute certainty (neither can anyone else, as certain as they may feel).

Analyzing trends in the stock markets and in sectors is simply a way for me to anticipate direction. When the markets are going up, investors are optimistic; when the markets are heading down, investors are pessimistic. I don’t have a crystal ball that will tell me for sure whether things will go as I predict, or if some world event will occur to really rock the markets. I simply rely on my plans on when to buy and when to sell, I read the price charts to find these signals, and I consider what is going on in the economy and in the world that could affect a change in investor sentiment.