How Do Retail Investors Invest?...How Should They?

I think I am a retail investor, but I don’t follow the process as David describes in this great post . David was head of Yahoo Finance and now our head of product at Stocktwits.

My purchases do not move stocks. I don’t have to keep them secret. I like talking about them after the fact because I can. It helps me stay on top of the products and the mood surrounding the company and industry.

I keep lists. A lot of scribbled lists, some on stickies on my computer screen. Most I lose or just throw away the following week. The whole process of owning bits of company paper has gotten easier for me as I have gotten older and simplified the reasons I even want to own stocks and the reasons for buying them.

I like strong markets with many leadership groups and I generally buy into strength, sell into strength and get stopped out in periods of extreme weakness. The stocks I end up owning are onces that most people have heard of. The price is at or near an all-time high and I believe there is a catalyst that will drive the price higher. It’s not a perfect system, but the process forces a level of gardening/pruning that just naturally gets me back in the prospecting mode.

As I think longer term and bigger trends, my daily walks on the ocean have further solidified the way I do things. Supply and demand drives prices, but I try and take that out of my decision making and thought process. As a small investor I can’t control the supply and demand so I need to find big trends and recognize catalysts. I also rely on pattern recognition and the basic belief that all trends end, generally fast. As I watch the ocean rush in towards me and try to position my feet at the spot where the rush ends I am reminded how hard that is to do without taking in all the information around me and the amazing cycle and push of the ocean. The markets behave in much the same way. I am glad I try to ride in with the tide and step off early than stand waiting and hoping that I am not run over by it.