My Own Experiences
Bluechips outperformance: Bluechips will generally outperform small caps over the long term (1 to 5 years). Smallcaps are only worth an investment if they have been around for longer than 10 years and are currently not fighting with falling profit margins and the CEO is not known for a poor track record or betting big on a single product. I am also quite fond of mid-caps and companies worth over 1 billion with profit margins over 30%.
About smallcap breakouts: I have seen so many smallcap companies break out only to come crumbling down weeks later. In general, if a smallcap stock goes up 20 or even 30 percent in a few days it’s time to get out. It’s VERY rare that a smallcap stock breaks out and can establish itself at a higher level. Bluechips generally don’t move up more than 10 to 15 percent in a single day, but when they break out they can usually establish a new support level.
Avoiding volatility: Because I want to avoid the entire volatility game, I usually invest into companies I consider undervalued that have already established an uptrend. One only has to look at the 20/50/100 day moving averages over 1,3,5 years. The support lines are not always accurate but are the next best thing to predict trends and work very well for long-term investors who don’t want to get into the finer details of day-trading (which is really all about timing a breakout and a game for “hunter”-type personalities).
Active management: Although I believe it’s important to actively manage any investment and never to just let it sit idly, there are indeed times when its better to simply sit back and give it some time to appreciate in value. I tend to sell off losers very quickly, but stocks I have a strong bullish opinion about I tend to keep longer even if they drop in value. That’s when I add additional shares. That’s how I proceed until losers are underweighted and winners overweighted. One only has to make sure not to do too many trades or the trading fees will offset the benefits.
I have followed certain companies for 10 years now and feel much more comfortable participating in the market. It’s easy to look at short-term volatility and get scared but if you play your hands right you can make money and even beat the market.
My outlook: Currently, I believe many commodity producers are undervalued and as soon as the FED will increase the rates the markets will stumble 10-15% and we will see a major correction in the commodity sector, but that’s just an opinion, it may play out completely differently. My predictions are sometimes very far out there.
Although I am not currently invested in the companies, I particularly like the following tech companies looking at 2015-2020 which I may invest into again later this year: Microsoft, Baidu, Qualcomm, AVG.