Berkshire Hathaway led by Warren Buffet is often depicted as the kind of company most businesses would like to emulate. Buffet is the Midas of Wall Street, using sound investing principles to buy companies, rather than stocks. Those same companies have a habit of increasing stock prices once Buffet targets and buys them.
These same principles hold true for the average swing trader. Buy companies you use, buy companies with solid financials and buy companies that you research and know well. Take BNI, Burlington North Santa Fe, for example. Buffet’s company owned 22% of the railway business. On Tuesday announced it would purchase the 77% they don’t already own. The stock price jumped $22.00 in pre-market trading, and there are two lessons to pull away from this before the bell signals the open.
First, try it before you buy it. Or in this case, take a small holding position in a company to get to know it better and determine if long-term gains can be made by putting it in your stock portfolio. A stake in Coke, for example, another company Buffet owns, can demonstrate to you how the company would fit in your overall trading plan. Buffett invests a small percentage into a company to determine if it’s a viable fit for his long-term goals. You should too.
Second, once Berkshire Hathaway or any major investment company announces a big buy pre market, you should use the headlines to map out your swing trade for the day or days in the trading week. A play with BNI on Tuesday would put some serious profits in your portfolio, much like Apple’s announcements last week, or Wal Mart’s coming announcement. (That’s right, Wal Mart is going to report record 4Q profits, just as Ford did and you can play both the short and long position on the stock in the first weeks of 2010.) A savvy investor should be playing both sides of the BNI announcement as well. The stock, which has hopped in pre-market trading, may be ripe for a quick adjustment in the trading day. Doing a quick glance at the historical analysis though means making a swing trade up for an overnight position and taking profits post trading day (or even open marketing on Wednesday) and shorting in the afternoon to pull out some immediate profits. (The stock will rise throughout the day, but the bears will pull it back in afternoon trading.)
You can set your plan on paper to see how it plays out, and make corrections along the way. The key you need to learn from anything though is to read the headlines first thing in the morning, and plan your trades accordingly. Two big announcements over the past two days have brought me out of a trading vacation, I was planning to take a break between now and Christmas, but the opportunities that the headlines present are too irresistible to step away from at the moment. You should use the news as well. I’m also going to be bullish for a moment and state that we are seeing signs of an economic turnaround and that 2010 will be good for America and our economy. Don’t let fear be your main motivator or control your trading. Instead use the power of knowledge and self-education to enhance your trading skills and put more profit in your pockets.
