David Linton is the founder of Updata plc, a market leader in the provision of software and services to private and professional investors. He writes regularly in the financial press, and appears weekly on Bloomberg. He sits on the Parliamentary Information Technology Committee.
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Cut losses, cut losses, cut losses, let profits run.
Most investors underperform because they sell all their good stocks and hold onto all their bad ones. If you buy a share and it starts falling heavily, get out. Equally, if it starts going up, wait for it to come off the top before selling. Even if you only get your stock picks right some of the time, you can easily be ahead on this strategy.
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Buy stocks that are going up.
It sounds ridiculously simple, but it's true. Stocks that are rising tend to keep rising while those in a downtrend continue to fall. Unless there are clear signs of a reversal, the trend is your friend.
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Hindsight is a wonderful thing. Use it!
No investor can know the top or bottom of a cycle until it has happened . When you find yourself saying "I should have bought there", buy. Likewise, "I wish I had sold there", is a great sell signal.
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Don't be eager to buy on buy signals. Be eager to sell on sell signals.
Don't anticipate a signal, wait for it to happen clearly. Recoveries don't normally happen overnight, you need very clear signs that the worst is over. Support levels are always tested . Get used to it. If they are clearly breached, that's different. Get out!
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Know your sectors.
Often investors are not in the wrong stocks, but in the wrong sectors. Scroll through all the sector charts at least once a month and establish which ones are going up and which are not. When you realise you are invested in all the wrong places, rebalance your portfolio.
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Don't trade against the trend.
Going for a short term trade against the direction of the longer term trend is very dangerous. The odds are against you.
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Never take a tip. Time them at least.
Most tips come to nothing. You can increase the odds by establishing levels on a chart where the price is breaking out. This can often happen months after the tip. Set an alert. If it is breached then you may be onto something.
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Fundamentals are good long term. Charts are better short term.
Buying on fundamentals is fine, but you need to be patient. The long term normally wins in the end. Always remember that fundamentals are bad for selling. Charts will get you out much faster.
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Tell me something I don't know.
Investors are bombarded with information they already know. The key is to spot things happening that the crowd hasn't yet seen. If it is obvious, it is obviously wrong!
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Take the emotion out.
Emotion is the investor's biggest enemy. It is the place where fear and greed meet and conspire to blur your judgement. If you are finding a decision difficult you are already dangerously close to being in the grips of the emotional taking over from the rational. When in doubt - do nought if you are out, get out if you're in.
