Novice,
I beg to disagree: If you cash in after one week for a 10~12% jump (ok under 10% it's too little),
1- You did in one week what any long term investment at the bank would give in one year.
2- It's not only a matter of chance: Chart analysis and fair value estimate play a role.
3- If you repeat that exercice with 4 net success in one year, you get close to 50% too... with much less risk as your money is constantly diverted or reinvested.
1. Ok. Anything can happen in a given week. Be it up or down. What if the stock goes down 10-12% in one week? Would you cut your loss or would you wait?
a) If you cut your loss, then your risk:reward ratio is 1:1 before any comission, which means you are merely breaking even on paper.
b)If you wait, then you are exposing yourself more to losses than gain (Since, you sold so quickly at a gain and not wait it up).
2. This I agree. But then again, it is not pure science. You won't know with 100% accuracy whether each particular chart pattern or fair value calculation will really give you that much amount of return. Thus, you need some kind of stop loss even with long-term investing.
3. The math makes sense. But again, you have to be SUCCESSFUL each time and I do not think it makes much more sense for everyone to have that kind of accuracy. Just do the math. If you make 50% return on your investment each year, $ 1000 on year 0 will become how much after year 25,30 or 40? The answer will surprise you. 25 years: $ 25.3 Million. 30 years: $ 191.8 Million. 40 years: 11.06 Billion. How many billionaires out there that can do it with $ 1000 and no additional investment required? Not much.
What I am saying is, I do not invest in stocks that don't have the chance of gaining 50%. For example, buying a stock that is merely 10% below fair value would give you only 10% gain in most situation. The downside, it can be 10%, it can be 20%, it can be 30%. I don't control the market and I don't know how low the stock will go. Regardless of the actual outcome (10% gain in one week), this is just the plan that I go with.
50% is doable but much more difficult than 10 or 20%. For 50% in one year you practicaly need to catch the bottom and sell at the top while you never know were is the bottom and the top. I'm myself trying 50% gains on some stocks. I rarely succeed. Often I sell earlier because I see that it goes nowhere near I hoped. Often I buy too early, too high and I'm toast. Often I buy at the bottom yet too early and it takes ages to move up. When you do it it's great but it takes often more than one year to achieve.
Yes, from the time I buy till the time I completely sell out, it is generally more than one year. This is more of a longer term approach. Patience is really key, but you don't have to practically catch at the bottom. Just near the bottom will suffice. In fact, in the past, I generally buy 10-20% above the bottom. If you see S&P 500 stocks, many will have 50% or more 52 week ranges. Thus, it is doable within one year period. How about I give you examples of group of stocks that move more than 50% in a given year? HPQ, AAPL, DELL, MRK, PFE, AMGN, AMD, INTC, all home builders, most banks, most investment banks, most retailers (CC, KMX, RSH, BBY, BEBE, GES, ANF, AEOS) and many others.
To sum it all, we agree to disagree at several points :-)
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