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Monday, September 9, 2013 - 07:00

This Is Much More Important To Your Wealth Than Any Stock Pick

Monday, September 9, 2013 - 7:00am

Today's essay is a little different than you're used to.

I'm not going to talk about any specific investment. Nor am I going to tell you about a stock that I think is about to take off.

Frankly, what I have to tell you is much bigger... and much more important to your success as an investor.

It all begins back nearly three decades ago.

You see, I began my investment career while I was still in the Air Force. I spent 20 years in the service, rising to the rank of lieutenant colonel before retiring. During those two decades I served in Spain, Germany, Japan, Korea (at least 10 times), Iceland and Guam.

In my spare time, I earned my MBA and became more serious about investing. I taught myself the ins and outs and read anything about the topic that I could get my hands on. (When I was stationed in Iceland, I would study the Financial Times for hours on end while my station was snowed in.)

I was especially drawn to trading. The rules-based approach of trading made sense to me. Rules take the emotion of out of investing. They simplify your choices. And they provide discipline.

A few years later, after retiring from the Air Force, I became a professional portfolio manager. I was in charge of private accounts and two mutual funds. I eventually managed more than $200 million in client money. I even wrote a couple of books on trading that you can find on

But I've noticed a major disconnect when you talk about trading with many investors. Some people think trading isn't for them. To them, it's a dirty word. They think it's complicated, risky and only for highly experienced investors.

That's causing the same people who would benefit the most from trading -- those looking to make more money from the stock market while largely avoiding the downturns -- from reaching their goal.

Truth is, just like regular investing, trading can be as complicated... or as simple as you want. I much prefer to focus on the simple aspect to increase returns.

In fact, I sometimes hesitate to call it "trading." Most people equate that with moving in and out of stocks in a matter of hours, racking up huge commissions and ignoring any fundamentals. I think 99% of people should not be doing that.

I look for holding periods of six to 12 months. I wouldn't be surprised if most people who claim to invest for the long term have an average holding period of less than that.

Furthermore, in addition to using relative strength -- a trading tool that tracks the performance of a particular stock and compares it to the entire market to tell me when to buy and sell -- I also focus heavily on fundamental indicators such as cash flow to determine which stocks to buy. The trading signals I use help determine when to purchase these stocks to increase the likelihood of a gain.

Most importantly, I am just as focused on when to sell as when to buy. A good set of trading rules, including stop losses, lets your winners run and cuts losses short. This helps to protect you from the wild swings we've seen in the market over the past few years -- something that can help any investor.

Best of all, you can zero in on the types of stocks you want own and use a few simple rules to drastically improve your results. If you're an income investor, for example, you could focus on stocks yielding 4%-plus.

My latest research involves using stocks held by Buffett, Soros, Icahn and over a dozen other investing gurus as the starting point for my buys and sells. My initial results are very promising... the system easily outperforms the market and even the gurus themselves.

My research is not finalized yet, but I've put together a new report, How to Outperform Soros, Icahn... Or Even Buffett, to help you beat the best investors in the country at their own game. Plus, I'll tell you about three of the highest-rated stocks held by these billionaire investors.

This report is absolutely free. Click here to read it now.

Michael J. Carr does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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