Before You Buy Another Stock, Ask These 4 Questions

Before you buy your next stock, what's one question you should ask yourself? Well, I recently sat down with three of our top coaches at Vectorvest and I asked them that exact question and we each gave different answers, but they actually go together and give you four questions you should be able to answer before you buy any stock. take a listen and then I'll meet you back here in my office and I'll show you how to do it. I'll see you in a few minutes. I think we Let's start off with more of a a foundational question. I'd like to this will set a nice foundation for everybody. I want to ask each of you the same question. All right. And this question is what would be like one question that an investor should ask themselves before buying a stock? And I'm going to go to Jerry. Just so happens that Jerry's holding the microphone. So I'm going to start with Jerry. >> Y uh one question that every investor should ask before buying a stock is not what the stock is doing. Of course that's important. That's the instrument that you want to use, but what the market is doing. Uh we always suggest to our clients to trade in tune with what the market's doing. So buy rising stocks when the market's going up, short stocks when the market's falling or uh be more in a cash position. So before buying anything, what's the market doing? Is the wind tier back? Is the trend up? Uh is the trend strengthening? All these things we want to make sure are in place before we buy any stock. So, I would say what what the what's the market doing would be the first question that should be asked. >> Awesome. Who's next? Todd, you got a microphone? >> Sure. Uh, mine's a little bit more nuanced and maybe even comes before that is my first question is, well, what's your objective here? Is this an investment or is this a trade? Um, because I find a lot of folks that that I'm coaching are at cross purposes, right? they they think they're investing in the stock, but they're managing it like it's a trade. So, let's get clear on your objective for the investment or trade to begin with. >> All right. I would say know what the stock is actually worth. Um, it's often overlooked these days. There seems to be a new craze uh maybe even a new lineup of investors ever since co who are very much in tune with the news and the storytelling aspect of stocks in the stock market. for example, like a Tesla where we're talking about the upcoming robots and in the future in the midst of declining earnings per share and falling valuation and falling stock price. So, I I think the number one question investors need to think about before they buy something is what that stock is truly worth right now. Not what it might, should have, could have possibly be in the future, but what is it worth right now? good things. If if I may add one sneak in this one, I think slips by sometimes is when will I sell this stock? Before I buy a stock, know when I'm going to sell it. And I think you have to know the answer to your question, whether it's going to be an investment or a trade. Know what kind of stock you're in, but knowing when you're going to sell it, that way you know your exit before you you enter stock. Anything else you'd like to add before we uh move on to our next segment? No. Roll on. Thank you. I appreciate that. All right. So, let's put this all together because for a lot of people, if you do ask a question before buying a stock, it's typically focused on the wrong thing. You ask something like, "When am I going to buy it?" or "How much money can I make?" and how long is it going to take me to make money? So, let's take the four questions from the coaches and rearrange them a little bit. I think by rearranging them, this will build a better process for you before you buy your next stock. So, I'd actually like to start with Todd's question, which is, what's my objective? because that answer actually drives all the rest. For our purposes here, let's focus on two types of objectives. One is you're looking for a shorter term trade like a a swing trade. The other is you're looking for more of a longerterm investment, which would be considered a position trade. Now, you don't have to be one or the other. For example, for me, I have some money dedicated to swing trading and a bigger portion of my account is dedicated to my longer term investments. The important thing is before you buy a stock, you got to know which basket it's going in. Now, let's go back to Jerry's question, if you remember that from the coaches panel. If not, here it is. Uh, what's the market doing? Because market direction is the single most important thing that you need to pay attention to. And we actually did an entire video on the importance of market direction, and I'll link to that in the description so you can watch that after this video. Regardless of your objective, you want the market to be moving up when you buy your stock. All right? You want it to be going up no matter what. You want the market to be going up when you're buying a stock. Now, the difference is how quickly you react. So, if you are swing trading, you'll use a a quicker timing signal, whereas a position trader would want a little bit more confirmation. Now, inside of Vectorvest, we have terminology for those signals. Our quicker timing signal is called the primary wave. And if you are looking for a little more confirmation, you would use our green light buyer signal. And let me show you actually what that looks like inside of Vectorvest. So here's a look at Vectorvest's homepage uh back on August 3rd. And for a position trade, you would simply look for a green light. So we call this a green light. It's just like a green box. So, you look for a green light over here in this price column on the current day. So, if the current day was August 3rd, you see a green light. That's what you'd be looking for. Now, for a swing trade, you could also look at that green light. You could use that green light as well. Or what you could do is look over here in the trend column. And you see how there's two words here, up and down. And here in the trend column, you look for it to say up in this first part right here. And notice the up. You see this up right here? It appeared a couple of days before that green light. So it appeared a couple of days prior to the green light. So it reacts quicker. But also understand that by reacting quicker, it'll also have more signals up and down. So your objective affects how much confirmation you may want before you act. Okay. So let's go back to our list here and we'll go to Steve's question next. And he said to ask, "What's the stock worth?" And I'd expand that a little bit and say, what kind of stock am I looking for? And does this stock fit that objective? So whether you're swing trading or position trading, you still want to buy a really good stock. And that's one of the things that uh surprised me when I had been position trading for a long time. And then over the past year, I've been doing a lot more swing trading and I noticed that in our swing trading group, basically buying the exact same types of stocks. So, you still want to look for a really good stock. Now, one minor tweak would be that your swing trades are putting an emphasis on stocks that have a lot of upside potential. because most of the time you're buying these stocks after they've pulled back and then what not just as they're still falling though you want to buy them after a pullback once they've resumed their uptrend and I'm actually going to show you a couple examples in just a minute and you want them to have the potential to have a quick pop higher now for your longer term investor ments, you'd look for both upside and safety. Now, inside of Vectorvest, we have proprietary indicators that help you find these characteristics of upside and safety a lot faster and easier. We have RV or relative value that helps us and you evaluate a stock's upside, right? The upside potential. It factors in things like the company's earnings and earnings growth, but we also compare it to an alternative investment in a bond. It's on a 0 to2 scale like most of our proprietary indicators. And swing traders look for high relative value values, RV values. All right. So for a long-term investment, you also want to factor in safety in addition to upside. Okay? And for that we calculate an indicator called RS which is relative safety. Okay? So RS or relative safety it looks at a lot of things. All right? A lot of things so that you don't have to. It looks at the things such as the consistency of a company's earnings. It looks at how long the company's been around. It looks at the price volatility among a bunch of other things. And like I said before, I'll walk you through a couple of trade examples in just a minute. But the important thing to remember, right? So the important thing to remember now is that you want to make sure that you're buying a good stock and that it matches your objective. Okay. All right. And then we we get to back to the coach's panel. We're on our fourth question. We get to my question, the one that I asked, which is when will I sell? And I always think a lot of people don't think about this until after they're in a stock. They buy a stock and then time goes by and they're like, "Oh no, what should I do? When should I sell it?" So this is where those objectives matter again. Okay? If you're making a shorter term trade, you'll typically have a tighter stop. And the thought is that, hey, this trade is either going to work immediately or it won't. So you're going to have a tighter stop. For example, we typically use something like the the prior swing low as our exit. And again, I'll show you an example in just a moment on a trade that I did in our swing trading group. So I'll show you that in just a moment. Now, if you're looking at more of a position trade, pardon me, or a longer term investment, you want to give that stock enough room to breathe, right? enough room to do its normal actions here. Uh if your stop is too tight, it can knock you out on just normal price movement. Inside VectorVest, we calculate a stop price, which is fine-tuned for each individual stock. It factors in its price movement. So, it factors in the stock's 13-week moving average. But what it also does is it also looks at the company's fundamentals, which is perfect for your longerterm investments. Now, here's the really important part, right? And it's not on the slide, so make a note of this. Regardless of which stop you use, you still want to control your risk. You want the size of the position, right? You want to size your position. Uh, in other words, the number of shares you buy, you want to size the position so that if the trade doesn't work out, the loss is only about 1 to 2% of the total portfolio. So, remember, that's not 1 to 2% stop-loss, right? You're not going to use a 1 to 2% trailing stop. You're just saying if the trade doesn't go in your favor, if it does lose, that dollar amount is equivalent to 1 to 2% of your total portfolio. So, a wider stop, like for a longerterm investment using the Vector STO stop, a wider stop doesn't automatically mean, hey, I'm taking on more portfolio risk because I have so much more like a wider stop here. It may simply mean that you just got to buy fewer shares. Now, I've actually done uh another video uh specifically on position sizing and that one to 2% rule. So, again, I'll put a link to that in the description. It also has a free GPT, like an AI GPT that you could just use and plug in your numbers and it'll it'll do all the stuff for you. So, check that out. The link is in the description. Now, let me show you how quickly these four questions can come together inside Vectorvest. And I'm going to use a couple of swing trades that I did alongside Steve Chapel. So, you saw him in the coaches panel. Uh he's our swing trading coach. Uh one of the two uh alongside Jerry D'Ambrosio. And I'll also show a couple of position trades Todd Schaefer did in our successful investing coaching group. All right, so I'm gonna hop into Vector and I'm going to show you those trades. So I'll see you in just a sec. All right, let's quickly look at four trades. The first two will be swing trades. The next two will be the longerterm investments. And remember the question that Jerry asked, what's the market doing? So, the when to buy, and if you remember earlier, I showed you this, but just as a recap, back on August 4th is when the first two trades were placed. Uh, not only did we have a green light in that price column, but since they're swinging trades, we made sure that we had a primary wave up signal. So, let's go over and take a look at those two trades. I've got them queued up over here. Again, these were placed in our swing trading coaching group live with our students. Uh Steve Chapel is the coach and I was following along with his trades. So here we've got Huelet Packard. I've got the date August 4th highlighted down here at the bottom. That was the entry. We had the when to buy. Now is the what to buy. Are we buying good stocks? So here we're we are ideally picking stocks that overall had an uptrend. But for the swing trader, we're there's going to be times that they're pulling back and resuming their uptrend, which is what this did. It pulled back and was resuming its uptrend. But if we look down here, remember those indicators I talked about earlier. We've got RV 1.36. That's a very good rating on RV. Plus, it's got the extra benefit of having a a nice relative safety as well. And remember I told you what's driving RV. Uh you got to have great earnings. And if I put that on there, look at earnings was taking off. Uh if I put earnings growth rate on there, that's also doing really well as well. Sales growth rate is also 41%. Uh and that's increasing as well. So the second question of what to buy, this matches it. It's a great stock and it it's in resuming its uptrend. So, we've got the when to buy, the what to buy, then we've got the when to sell. And for a swing trade, one of the things I mentioned would be the prior swing low, telling you that, hey, this trade isn't working out. So, like something like this, this little swing right here, if it broke down below that low, that would be the exit. All right. So, this one actually, if I look back at my notes, only in it for about a little over a week. I got near that resistance level right there on August 13th. close the position. All right. And that ended up being a 16% gain in about a week and a half. So if we look at ALB, remember our questions, we've got the when to buy, the what to buy, and the when to sell. So the when to buy, it's the same date, August 4th. So we already know that we had that primary wave up signal. This was a stock that was in an uptrend, had a pretty big pullback, but started to resume its uptrend. And if you look over here on that day, relative value, the one of the biggest things we look at on the swing trades, 1.35. So again, very good. And if you're looking at earnings, man, look at that. That's picture perfect. That's beautiful earnings growth, you got sales growth. I mean, everything was looking great. So you've got a good stock. So you got the when to buy, you've got the what to buy for this swing trade. And then for the when to sell, again, this is I wanted to show you clearly what a prior swing low would look like. So, it would be below that low as an exit. This one was about two weeks of a trade. Uh, closed on the 18th of August. Uh, right there after it started to pull back a little bit. That was a 9% gain in a couple of weeks. So, that was an example of two swing trades. Notice we had the when to buy, what to buy, and when to sell. All questions answered before the trade was placed. So, if we look at a couple of the position trades or the long-term longer term investments, we're not saying buy and hold here, but let me get back up here our the date. So, the first one we're going to look at is uh May 1st. So, I'm going to just bring this back to May 1st. And on May 1st, if we look, we're going to look for this color guard in our newsletter on that day. So, if I scroll down May 1st, you notice the P color and the price. Now, we're since we're placing the trade on May 1st, we want to make sure that the color was green the the night before, which it was. So, we had a green. So, we're longerterm investment looking for this green light over here. So, we're good there. We're going to go to LRCX. This was May 1st. I've got that highlighted right here. Notice a little bit of a difference. The stock was going up. Now, this one actually did also pull back with the market. uh started to resume its uptrend, but a lot of times we're also buying stocks hitting new highs when they're we're buying longerterm investments. So, this one just happened to be also pulling back. Uh earnings, sorry, let's look at RV and RS first. Man, look at this. Still have a very good RV 1.36. Relative safety is excellent. 1.46. Excellent ratings there. there. And if we look at earnings, oh my goodness, that's what you want to see. So, this is a also a proprietary indicator from Vetovest. It's a forecasted earnings per share. It's very, very good to look at. It makes it so easy to analyze earnings. Uh, what's earnings growth rate? I mean, look at that stair stepping up. It's exactly what you want to see. And it also has sales growth of 24. All right. So, we've got the when to buy, we got the green light, we got the what to buy, we've got great RV and RS with upside and safety. And then for when to sell, we have our proprietary indicator of the Vectors stock price. Notice it gives the stock enough room to work its way up the page. Now, this was a longer term trade. It was we were in it for a couple of months. Now, we do have some sell rules built in in addition to this vector stop price, but even if we use the stop price, it would have been a positive trade. closed this one on July 6th right there. All right, on that candle. That one was a 43% gain in two months. All right, so a nice position trade there. And then FIX, we traded this one a couple of times back on January 7th. We had the same when to buy situation. I won't show it. I won't uh waste time pulling up and showing it to you. Uh when you get a access to Vectors, you can go back and look at those dates just like I showed you. So January 7th, we had a green light the night before. January 7th was our entry. This is again more what we would typically buy in a position trade where the stock is hitting a new high or at least near that new high on that day. And if we look at the RV 1.52, that's amazing. RS 1.47. So you've got the upside and the safety. So we got the when to buy, we got the what to buy, and then the when to sell. I mean, look at the Vectra stop gives this stock enough room to work its way up the page. Now, this one we traded a couple of times. We were added it on March 9th for a 20% gain and then we re-entered the same stock over here on April 10th. If I just slide over a couple of days, April 10th, again, hitting a new high. Market was going up on the same day. That one was from April 10th to May 20th. So about a month and a half. Uh about a 16% gain. But the big thing is you got the three questions answered. When to buy, what to buy, and when to sell. And the initial question way back at the beginning, what was the objective? You're clear on that. Helps you answer those three questions. When to buy, what to buy, and when to sell. Vectorvest does make it easy to find these stocks. We've got other videos that show you that, but we've got a thing called the stock viewer, which ranks all 9,000 some odd stocks we track in the US. So that the the best RV, RS, and RT, which we didn't even talk about RT today, up at the top of the list. We've got a couple of searches that you can run. Our swing trading group runs those searches. And but this is what you look for. And if you just pull up a chart, you look for rising price. You could look for the RV and the RS. You can put earnings on there, earnings growth. If you find those quality candidates, it makes it easy to to do inside of Vectorvest. You're well ahead of a lot of other investors out there. All right, so you got the four questions to answer. And so let's sum this up and I'll see you in a little bit. So the next time you're getting ready to buy a stock, don't just hope it'll go up. Ask these questions first. And if you can't answer them, don't buy the stock. And will every trade work out? No. But you can enter the trade with a plan. And our goal here at Vectorvest is to help you become a more confident, disciplined, successful investor. And if these videos help you or if you have any questions, just leave a comment and let us know. I read every single one of those comments and we'll respond if you have a question. I'll typically even respond even if you don't have a question. Uh, and if you want our help knowing when to buy, what to buy, and when to sell, take a 30-day trial of our software. And God willing, I'll see you in the next video. Take care.