Stock Selection

Discussion in 'Trading' started by SoxxClinton, Nov 6, 2002.

  1. When I started out in this business I was a strict fundamental stockpicker type to the point of being a contrarian value player based on Ben Graham and David Dremen's writings.

    While I could always beat the S&P using this strategy- I beat the S&P quarterly for three years running, beating the S&P's relative performance did not always translate into high absolute returns, particularly during the bear market- ie, I could have lost 5% in quarter where the S&P was down 10%. Another problem was the drawdowns inherent in an unhedged buy and hold portfolio. Even with value stocks holding up better than the headline indices, this was particularly a problem this year.

    Anyway, this year I started studying trading systems and technical analysis, initially as a way to figure out how to hedge a long-only portfolio. As I got further into it, I wondered- "If some of these trading systems work, why buy and hold anything at all. Why not trade around even your value postions?". This soon developed into questioning even whether stock selection matters at all. I mean if your system works, couldn't one trade just about anything? What is the value of pulling apart all those financial statements and doing the work involved in stockpicking if you are controlling your risk with a trading system? Could it be that finding stocks that fit the movement criteria of your system best is way more important?

    Or even more narrowly, one could forget individual stocks alltogether and focus on a single index future or ETF!

    On the other hand, maybe combining a solid system with decent stockpicking is a double-edge that is not to be ignored.

    Anyway, I'd like to hear input on how and why people select their securities and why they think their method of selcting securities to trade/invest in makes the most sense.