I am 25 years old and spent the last 5 years saving money and essentially sitting on it as it accrued .1% interest in my savings account. I transferred $38k into my brokerage account about three weeks ago and have gained almost $1k since then. It sounds good, but almost all of my gains are mostly attributed to my holdings in FSLR and SPWR, which are two of the largest holdings I have in my portfolio. I spent a week reading over the solar energy market and made the best educated guess I could and miraculously succeeded. This was without analyzing numbers and mostly just reading countless of articles on different solar panel manufacturers.
I don't think this is a viable way to invest my money at all and I want to become better at this. I spend almost all of my free time on the weekdays reading online and looking at stocks but I just can't make sense of all the different data entries on FINVIZ. What came easy for me to understand in solar energy, is much more difficult in areas like biotech, REI, and oil & gas, which are areas that i'd like to put money into. I am mostly interested in medium-long investments and I have no interest in day trading because I simply don't have the time while at work to do that sort of thing. How do you find companies to look into? When you find a company, what do you look for specifically?
Looking at oil & gas companies, for example: I figure that right now would be a good time to invest, as many of these companies are getting hit pretty hard from the drop in global oil pricing. Why do analysts downgrade RDS-A (Shell) when it is falling in value? I realize it is not at it's lowest in the past 52 weeks, but, surely, Shell isn't going anywhere and will climb back after oil recovers. I've read that companies are assuring investors that they can weather this storm from their reserve funds, but, in reality, those funds are almost entirely made up of their credit lines. These funds are, supposedly, getting downgraded if the pricing of oil remains constant this year, which will hurt companies like Shell even more. This sort of information is what I gleamed from articles I've read, but I have no way of knowing if the person writing the article is full of shit or not. I look at the analysts positions on stocks and try to find a correlation for why they take these positions, but come up empty-handed sometimes.
Well, if you want to make more money you will have to take the risk of squandering your money. I ran each indicator on FinviZ through Google until I had a good sense of what they all were. Again and again and again until I knew. Sector rotation and business cycles might help you get an idea of what to look for in longer type trades.
This thinking will help you overall though: Why did you pick solar? Sure in the real long term as earnings grow, demand for the shares might increase, but why now? I'm not saying its bad, I don't really know. What your trading is the demand for the shares, not EPS and P/E, and those numbers have already been factored into the price of the stock. Your really really really not likely to find anything an entire team of investment experts haven't, with big fancy degrees, already found. What your trading is the demand for the shares among other traders and investors, not the business. The business, ratings, news, breakouts, are all a means to an end, no more no less.
And articles and analyst ratings are mostly useless. Actually, correction... their useless, unless your exploiting the effect they have on markets from ignorant participants. Analysts rate pretty much after the fact and most articles everyone's got an agenda or just blowing smoke to create content.
You might want to start paper trading and gain some practice to at least find something that works for you and gain some market awareness.
You don't have to only look for companies to invest in....you can trade ETF's/Indexes and limit your exposure to any one company taking a dump on you.
If you do pick companies keep in mind the correlations that may exist between them. If they are all heavily correlated to the S/P then expect your entire portfolio to take a hit if the S/P drops....in which case you might as well just be long SPY.
My advice to someone getting started would be to create small uncorrelated positions in the most liquid/heavily traded underlyings...and if you don't want to manage your positions on a daily basis at least learn how to sell monthly covered calls against them to reduce your cost basis over time. Don't go all in at once...always keep some bullets back to take advantage of opportunities as they present themselves.
And learn, learn, learn.
Late to the game and I am feeling frustrated
Here is an example of correlations. The yellow line is FLSR and the purple line is SPWR and the chart is for oil futures. The two solar positions are trading like one big position....and they both are correlated to the overall movement in oil...it's not 1 for 1 but the loose correlation can be seen. So basically you have been long one big oil position for the last 3 weeks despite all the research you put into it....had oil dropped back down to 40$ a barrel your P/L would look much different.
This is the kind of market awareness I going on about....it's important to understand what your overall position really is and where the risk lies.
Thank you both for your thoughtful replies.
Acstudio, I can see the correlation you are showing in your graph, but have to inevitably direct my attention to the fact that change in values were not inversely correlated late last year. If they are not inversely correlated when oil prices were up, why do you consider it causative when the price of oil drops and FSLR and SPWR rise? I have been following Sunpower daily and saw a response right after news of SPWR entering an agreement with APPL to build two solar farms in China. I don't think it is far-fetched to make the connection that two sources of energy would be inversely proportional to one another, but I don't think they are necessarily so. I hope you don't take my criticisms the wrong way, as I value your thoughts.
HungryWallet, I chose to invest in the solar industry because I felt that people would depreciate these stocks due to the fall of the price of oil. It was pretty much across the board - every major solar company started a downward trend late last year. If I wanted to get stocks cheap in solar, this would be the time - at least that is how i viewed it.
I will start looking into what each data point means. I'm not necessarily avoiding ETFs, but I already have an IRA of $21k invested ETFs and mutual funds, which is why I am not keen on putting even more in.