The markets can be a large universe of information, and managing that information could be quite a task. The novice trader tries to keep a large list of stocks. The expert keeps this this list down to a minimum.
Some of you are looking for an exact answer to the question of how many stocks you should be watching. That can be only decided by you. Here’s a tip, start off with your favorites. Maybe a few stocks that have caught your attention, or hear in the news. Typically these are companies whose names are familiar to you. Slowly add to that list as time goes on. Keep an eye on stocks that typically have large swings in price. This can be stocks that move up, or down significantly in a short period of time. You also want to make sure the companies you are watching are financially healthy if you are deciding to buy. For stocks that you want to short, pay attention to companies with balance sheets that are deteriorating.
It’s also important to not just watch the individual stocks. You should keep track of the markets and sectors they trade. If you are watching a technology stock, it might be a good idea to track the Nasdaq along with it, because that index is typically concentrated in the tech sector. If you are watching a petroleum stock, you should also watch the price of oil. If you are watching Walt Disney’s stock you should watch Disney’s competition. You get the idea.
At some point you may find that watching stocks can be a big hassle. That’s you’re que to start narrowing down and removing companies from your watch list. This can be difficult for the beginner, and feelings of missing opportunity may overtake the psyche. This is completely normal. The task here is not to capture every single opportunity. That is inefficient. The goal here is to become an expert in you short list of favorites. This same idea applies to big mutual fund companies. Each fund has a specialty, and they try to become experts in that field. It’s been proven that having a specialty is the key to success. Don’t be a jack of all trades, master of none.
In conclusion, stock trading should be easy and pleasant. If things seem too complicated, you’re doing it wrong. The key is to simplify your process. The best traders like Warren Buffett and Jessie Livermore kept it simple. They specialized in a certain category of stocks, and didn’t spend too much time in other categories they didn’t understand. Often times when famous traders make a killing, it’s usually in just one or two companies. They really paid attention to that one company, and became and expert in that one company. It only takes one or two great investments a year to become successful.
One last piece of advice. Learn to start over. The markets change all the time. The state of the economy is different every 2 or 3 years. It doesn’t hurt to delete you watch list and start fresh. You’ll find that you’re favorites are always in your mind, and there will be plenty of new stock that capture your attention.