Warren Buffett’s Sage Words Can Harm You

Everytime the markets break to new lows, it seems that Warren Buffett makes an appearance. All across the nation, investors are curious what he thinks about the current situation with the economy and America’s future. A few wise and positive words from the billionaire investor seem to calm nerves.

Unfortunately, hanging on the cryptic words of a wise man will do little for your portfolio. Even the man makes a few losing investments once in awhile. Many beginning investors think they can somehow duplicate the amazing returns of his fund Berkshire-Hathaway. Very few have been able to do so.

Just because he buys a certain stock, doesn’t mean you should buy all you can of that particular stock. The size of his transaction or position sizing relative to total portfolio value is VERY important amongst other factors which are undisclosed. His small losing trade could be a devastating loss for you.

Mr. Buffett could say that the future is bright for America, but if you start buying stocks in a bear market could leave you holding a position for a very very long time. I don’t doubt Mr. Buffett’s abilities as a genius investor. I doubt the average investor can duplicate the same returns.

It is important that you understand that even Warren Buffett has some type of methodology or system in which he uses to invest. One who chooses to invest or trade in the financial markets, must also have some type of system.

 

Breakout theory encompasses rational and prudent investing and trading:

1)You must know when to enter a trade using chart patterns, or breakouts, because it is the point of minimal risk.

2.)You must know when to exit when a trade. Using proper stop placement if the trade goes against you and understanding volume when the run is over.

3.)You must know if your are in a Bull or Bear market. You buy bulls, and sell bears.

4) You must buy stocks who are growth companies and short stocks who’s financials are weak.

5) You must understand risk management

6.)You must have a trading plan.

7.) Your investing style should always be systematic to prevent emotions from getting involved

8.) You should always have the best stock trading education.

 

 

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