Fundamental Analysis and Position Trading: Evolution of a Trader

Preface

Are you like John?

He learned early in life to save his money for a rainy day. Instead of putting it into the bank, he put it into the stock market. He bought Cisco Systems in mid-1999 at 35 and watched the stock soar to 82 in less than a year.

“I'm looking for my first 10-bagger,” he said, and held onto the stock.

In 2001, when the tech bubble burst, the Cisco balloon popped, too, and it plunged back to 35. He was at breakeven after seeing the stock more than double.

“It'll recover,” he said. “It's a $200 stock. You'll see.”

The stock tunneled through 35 then 30, then 20, and bottomed at 15, all in one month. When it hit 10, he sold it for a 70 percent loss.

“I should have sold at the top. Buy-and-hold doesn't work.” But it did work. Cisco more than doubled, but he held too long.

Next, he tried position trading to better time the exit and chose Eastman Chemical. He bought it in 2003 at 14, just pennies from the bear market bottom, and rode it up to 21 before selling. He made 50 percent in a year. Was he happy?

“I sold too soon.” The stock continued rising, hitting 30 in 2005. He disliked seeing profits mount after he sold, and wanted to profit from swings in both directions.

He switched to swing trading in 2005 and tried his old favorite: Cisco. The stock bounced from 17 to 20 to 17 to 22 over the next year, but he always bought too late and exited too early. He made money, but not enough.

He took a vacation from his day job and watched Applied Materials wave to ...