What would you buy now?
Seriously? Is that a question that we, as self-directed investors should have to answer. Yet the question is asked everyday in almost every financial media outlet. And most of the answers lack depth and sound reason. Moreover, the probability of choosing a successful stock is always 50/50. Why do you think monkeys throwing darts at the WSJ stock section performed almost as well as the professionals. Remember, it's a game that is controlled by marketing. Think about it. The message is so powerful on the major media outlets that they, the media, actually make you think the financial professionals that grace their airwaves and their respective companies can outperform the market. Yet, look at the facts
Randomly choosing stocks without an overall vision of a strategy or strategies is futile. An endeavor that makes no sense to me and one that has a low probability of success.
What is a logical, practical mix of various investment/trading strategies should be the question asked by investors. But, don't confuse a diversified basket of stocks as an actual strategy. A basket of stocks is only a form of exposure to the market, not a strategy.
A strategy is a logical, practical, mathematically sound approach that focuses on taking advantage of various nuances in the market. Whether they be mean-reversion strategies, gap fade strategies, a combination of various options trading strategies or even some form of a momentum based strategies. It doesn't really matter. What matters is that the combination of strategies must have a probability of success that makes sense. And when I say "makes sense" I mean that it must have a probability of success that makes sense and contains a risk/reward that makes sense given your risk tolerance.
For instance, take a bull put spread. An options strategy where based on my risk tolerance I can choose my own probability of success. Yes, that's right I can choose my own probability of success.
Let me explain.
I'll use SPY as my underlying.
SPY March 2012 Options Chain (Calls)
- SPY trading at $131.83
High-Probability, Mean-Reversion Options Strategy : Free 30-day trial
Theta Driver Options Strategy (limited room available): Free 30-day trial
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