Today we’re going to cover the two main ways that you can pick winning stocks based on the return.
We’re going to cover three main points:
- those two main ways
- how do they fit in your portfolio
- how you find winning stocks
Before we start, I’m going to let you in on a little secret. It’s not that difficult to understand this video on your two main ways that you could profit based on return.
2 Main Ways to Profit Based on Returns
There are huge returns and smaller returns – consistency.
Consistency has smaller returns.
You want to know the pros and cons.
With huge returns, you have a higher risk. And here is a lower risk if you’re getting consistency. There’s still a risk – it is just lower. Returns are smaller returns. And in the first one, there are higher returns, and these are more like speculative plays.
And with consistency, this is safer plays. and think of this as dividends.
When it comes to huge returns, think of this as penny stocks. It could be day trading, as well.
- higher risk
- higher returns
- speculative plays
- Penny stocks
- day trading
Consistency (smaller returns):
- lower risk
- smaller returns
- safer plays
When you look at this, this is the two primary ways that you’re going to have winning and successful trades based on their return. You either have huge returns, or you have smaller returns.
Where do They Fit in Your Portfolio?
The question is, where in the world do they fit in your portfolio. I always like to draw a portfolio diagram – actually, it’s more like a triangle. That’s just my way of approaching it.
This is how it looks when you break it down.
This is based on capital. If you have $10,000, you can break it down, and your base can be $5,000. The rest you can arrange how you want, and you might have a $1000 holding back for cash.
On the top, there is your speculative play. This could be your penny stocks, and this is where you’re going to get your huge returns. On the base level, you’re going to get your consistent. There is your safe investments. This is your dividends.
In the middle could be your swing trading or 30 to 60-day option trades. It’s more somewhat safe but not super safe. And it’s slightly risky, but not super risky. It’s right in between there.
This is how you would break it down, and this is where it goes into your portfolio.
How do We Found Winning Stocks?
You might be wondering how do I find these things on charts.
The first thing if you’re looking at the volume, usually just the ones that are traded the most. It’s not always going to be this way, but these are the very popular ones. And then what you’re going to do is narrow down. The safe place is the ones that usually have produced a lot of good dividends over the years.
AMD is not one of those cases. When you look at Bank of America GE, there’s a lot of volume traded there, but the stock has been toast, and it’s going down.
It’s not one that’s a safe play. You’ll probably know and understand these stocks when you see them. For example, things like an Apple traded highly, traded volume, and a dividend is there.
I skipped a lot. Why did I skip Ford? Well, because it’s a car company and continues to go down. And these things have not been growing, and the dividend is not that great.
You might look at things like Microsoft. You start looking and through these things, and you can ask yourself which one is growing.
It might be a good idea:
- Johnson & Johnson
- Exxon Mobil
And now, what you do is take these few companies and pop up your browser. That’s how I do it. I’ll open up an Opera browser, and now I can take these stocks that we had, and you check it out.
For example, let’s take Starbucks and type Starbucks dividend history. Out of your list of five or ten that you’ve looked at, you can take a look at the dividend history, and you can see this dividend seems pretty stable.
It’s been going back to about 2010, and it continues to increase and improve in 2019. It looks good. That’s what you’re looking for, like a long 10-year history. You could look at it other websites.
Here is a dividend growth over the last eight years. Find something with a long-dated history. That’s what you’re looking for on an investment. Even maybe a swing trade as well for multiple months. But you can get those ideas fairly easily.
Looking for Speculative Plays
If you’re looking for speculative plays, this is where it becomes more difficult. If we’re looking for US Common Stocks, I have a lot of different scans already set up just from doing different videos. But let’s say we have a new condition. I’ll probably do a price that’s greater than $15.
I started that scan. Now, you can see all of these companies. There’s like 2700 of these. So allow me to begin with the price right here. And you can see some of these are just wacky and that’s because the volume is very weak.
They do not trade a lot. Could you try some of these for speculative plays? Absolutely, but you never know what you’re going to get. You might get some that are toast, some that are just not moving at all. And a lot of this is because of the volume.
Usually, I add to this condition. A volume may be something that ranks and choose some limit. Cut out the bottom junk.
You might choose this: ranks in the top volume segment. Now we’re down to a thousand, but you can see volume is excellent. It’s about 117K, 2.6 million, 100K. I would say anything above about 100K-200K is a little bit better.
I could do volume is greater than 200K.
That gets us 650 on the list. Yes, this is a tedious process as you start looking at things. But at least the volume is somewhat there. And now you get some insight on stocks. You start scanning some of these things in any chart that maybe catch your eye. You could research these companies as well if you want.
And then make a decision. That’s how you would look for maybe potential huge returns watching for stocks that are potentially at support levels. Or near resistance levels that could be breaking out.
As you start spotting those things, those are the ones that could give you some opportunity. However, these things usually are short fliers. Sometimes you get some new ones like an IPO. I don’t know which ones are new, but you can come across a newer one from 2008.
Looking at Newer Companies
This one was newer in 2006. And you can see here we had some explosion and it did pretty well.
Now it’s at $15. Is it possible to do it again? Maybe, but that’s what you’re looking for. It’s a new company, and then at the beginning, that would have been your entry point somewhere around here. And then you sell it after a year or two. You could look for newer companies like that.
Here’s another newer company. There was a little digestion, then an explosion. That’s another way of doing it.
I hope this gives you some insight and things to think about regarding these companies.
There are so many different ways to find them. But when you’re looking at creating returns based on the movements of these stocks, there’re those two ways.
You’re going to have huge returns, or you’re going to have smaller returns. With huge returns, you’re going to be all over the place. With small returns, you’ll probably get more consistency.
Break it down in your portfolio, and you might have a few places that are speculative that will give you huge returns. And then you’ll have a few plays that are not going to give you huge returns. But they’ll be consistent for you.
And together, that should work out fairly well overall for the totality of your money.