Buy Assets.

 

How to Choose a Company’s Stock

This is key to growing your account value: the stock that you choose must be worth more when you decide to sell. We use strategies to build cash positions on top of our shares but this assumption is key to growing top line account value.

Decide if your timeline is 6 months or 6 years. You will need to evaluate companies on the timeline that you choose.

1. Identify Growing Markets

Will there be more electric cars in the future? If you believe the answer is yes, then this is a growing market.

Will there be more cloud computing coupled with enterprise spending in the digital space? If you believe the answer is yes, then this is a growing market.

2. Identify companies that share your values & peak your interest

You need to like these companies so that you enjoy discovering products, earnings and relevant news. If you’re excited about it, other investors are probably excited about it. This is positive for your consideration of market sentiment.

3. Narrow your search

That could mean 5 companies that meet these basic criteria. With this list of companies, go though the “Why Markets Move” Section and use the three categories of variables (Fundamental Analysis, Technical Analysis, and Market Sentiment) that move prices over time. 

4. Analyze Fundamentals

Learn details such as Market Cap, EPS, and Dates for Earnings Reports. Check their websites for investor relation sections.

5. Analyse Technicals

Take a look at these companies on TradingView to identify trends. Every stock that trends up has pullbacks, too. Identify key price levels and what prices are opportune for buying shares and selling options.

6. Form opinions

Use your analysis to form opinions about the companies you are considering.

One of my favorite questions to ask is: “What would it take for this share price to double” and “What would it take for this share price to half?”

Maximize your upside. Some companies are one big contract away from doubling in value. Others are one negative article away from halving (looking at you, NKLA)

  • Apple is very very unlikely to double any time soon. With a market cap of 2 Trillion currently, that would mean adding another 2 Trillion dollars in market cap.

  • Fast growing digital companies that are riding changes in societal landscape could have multiples of growth in the near future. Going from a market cap of 4 billion to 8 billion happens rather often. As you know from fundamental analysis, this means that the share price doubles.

7. Make projections

View these companies through three unique lenses. Bearish, Neutral, and Bullish. Create basic projections for each scenario.

Can you maintain your strategy in the bearish/neutral scenarios?

Is the upside worth the opportunity cost in the Bullish scenario? Is the the best opportunity that you see?

Consider option premiums. View the stock options for that stock and record the premium percentages relative to share price. Project how much cash you could conservatively add to your shares weekly.

Should I take a long or short Position?

Shorting stock is for suckers! … Ok maybe that’s an oversimplification. BUT take a look at these points: 

  • When you short a stock and the stock stays the same or moves up, then your buying power for that stock is decreased two fold. Ouch.

  • Stocks can only go down 100% but they can go up 1000% or more.

  • It feels less bad to see lower values in your account when the stock price also goes down too. You still own the same number of shares. 

That’s why I say shorting is for suckers. Elon Musk might even agree with me.

Time to Buy

Friendly reminder to manage risk appropriately. Revisit the Risk Management Section.

Size your position appropriately to your personal risk tolerance. When in doubt or you feel hesitation: Go Smaller. If you like the company, identify a smaller position size that doesn’t carry emotional weight for you. Get in. Execute your strategy. Get comfortable with winning.

Never use market orders, only use limit orders

A limit order allows you to specify the exact price at which you buy or sell a stock or option. You are in control. You are intentional about the prices that you pay or receive for the sale of stock/options. You can use the Fundamental Analysis (FA), Technical Analysis (TA), and Sentiment to establish an opinion about the price you are willing to buy/sell an asset.

Contrast that with market orders, the default order style on brokers such as Robinhood. Market orders mean “I want this done now. I don’t know or care about the exact price. Just do it.”

Especially significant for large accounts, Market orders will take away your control in the transaction. A few cents per share or contract can take hundreds of dollars from your cash position in a millisecond.