By carefully selecting stocks that have recently hit their 52-week highs and calibrating his fund's cash position with market expectations, fund manager Dan Shaffer, CEO of Shaffer Asset Management, claims that he can out-perform the market. Since the launch of his stock investment strategy, Shaffer has returned 7.43%, compared to 1.11% for the S&P 500. The key, as Shaffer explains in a brief interview with Business Week, is spotting the types of stocks with the momentum to push even higher: "The trend is our friend. The markets tell us where we want to go. We buy stocks at new highs to sell higher at a later time." 

With that in mind, Shaffer discusses the types of indicators that he uses to gauge the state of the market, shares his investment outlook and drops the names of a few stocks that are attractive according to his stock-picking methodology. Obviously, Shaffer's approach is a high-risk, untraditional strategy, so all the usual caveats apply. In fact, Business Week quips that Shaffer's strategy "would send most people running for the hills."

Yet, there continues to be a popular fascination with so-called momentum stocks, especially in media outlets such as CNBC. Moreover, Shaffer's approach highlights a salient point - often, investors' perceptions of what will happen are more important than what actually happens.

NOTE: Please keep in mind that TradeKing does not specifically endorse any of the securities or trading strategies mentioned. Depending on your risk-reward profile, this trade may or may not be suitable for your portfolio. The stocks mentioned are for educational purposes only.

[image: 52]

Bookmark It!

I find a similar strategy works well albeit in opposite fashion. Stocks hitting their 52 week low, when chosen correctly also provide opportunities for large gains.

When do you know something is at a high or a low?  Meaning, will it reach a new high or new low the next day, week, month.  I have been burned many a time when I thought I knew when something had reached it's high or low.  Like Schultz on Stalag 17, I know nothing! :)

Marcus, that's a question that I think we all agonize over. My biggest mistakes have been allowing myself to be shaken out of a position way to early. It is a lot easier with stocks than options since stocks move so much more slowly. But no hard and fast rule exists to my knowledge that will work for all issues. Just placing a trailing stop loss 5% below the existing price, something that is suggested all of the time, does nothing more than to assure you will be stopped out on the first volatile day. Some folks say stay with the fundamentals and until they change don't sell. What they fail to take into consideration is that the fundamentals change with every tick. The folks that play the technical side exclusively look at price patterns, stocastics, DMI, and a couple of dozen other indicators to decide when to buy and sell. What's your horizon? Long term, short term, trading, investing? It is just a problem you will have to struggle with on your own until you can come to terms with yourself. Not much help, I know.