This brings me to a beautiful line by Howard Lindzon and that is what my trading is too. Find a trend, and ultimately you will make money in trends. Trending earnings lead to trending prices. Even Warren Buffett looks for trends. If earnings are trending, you will have a trending price. Look for trends whether you use fundamentals or technical. Have the patience to write the trend. Remember no stock is for life. Get off when the trend ends. Which is something most people can’t do. These are the three things to look for. When Buffett says that he buys stocks for life but when the trend in IBM didn't materialise, he exited the stock. So, nothing is a trend for perpetuity. If you bought it, you can be wrong, you will be wrong. Be humble. The biggest wealth creator could also be your biggest wealth destroyer. It's very important that when the trend changes, be humble enough and learn to exit. This is what 2002 to 2007 taught me.
The interesting phase was between 2008-2013. It were five years where the market was negative 10 percent. Horrible space to be in. In that space too, you will find stocks with over 1,000-percent return. Trends will be there at all phases of market, it is for you to find the trends. You will find it is a very consumption driven rally. It is nothing to do with market. Trends will always be there. Some stocks will be trending, but it is your job to find them. Even if it was a sideways market for five years.
My largest holding is Bajaj Finance and it has been a roller coaster journey. The stock has done well. But when the markets go down everyone says that this is costly, there is an NBFC crisis etc. And I am experiencing the roller coaster ride. The most difficult thing is to sit on it.
So, these three stages have taught me this. Find a trend, ride it and when the trend changes exit it. The methodology you use is up to you, your study.
I am a trend follower. I look for trending earnings and trending prices. My favorite book is Market Wizards by Jack Schwager. Reminiscences of Stock Operator is very often mentioned by many people as their favorite book and that is my second favorite. In Market Wizards I came to know a very good investor trader Ed Seykota. He is a bit of a mentor and he is a master as far as trend following goes. That's where I developed my . Read this book and it will open out a different world for you. Don’t view technical analysis as Rs 2 stop loss, Rs 5 target. There is much more to it. Michael Covel has beautiful site on similar stuff.
My mantra is cut your losses and let your profits run. It is that simple.
I asked Ed once, that I use fundamentals and technical. How do I combine when there is conflict? He said it doesn’t matter. Even if you toss a coin and make investment decisions, if you stay true to above mantra, be humble enough to cut your losses. The market is supreme. Whenever you are in profits be able to sit on it. This summarises my in markets.