Article by John Kim

In the first four parts of this series of investing in small cap stocks, you learned buying and selling strategies. Now once you carefully research and identify an industry or sector that you are convinced will grow exponentially over the next one to five years, how do you identify the best companies? In this bonus tips article, I’ll discuss how subscribing to the “a rising tide lifts all boats” theory can severely hinder your stock performance.

As of the writing of this article, spring 2006, many sectors look very promising. Precious metals, technology, nanotechnology, renewable/ alternative energy, and so on. But thinking that you can just buy any companies in high-growth sectors without doing considerable research can be disastrous. So here are three tips to help you out in this process.

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As I write this article on time frames, I wish to speak a little bit about my experience as a trader.  Throughout the years, I have made my fair share of mistakes.  Those of you that trade/invest in the markets know it is just part of the game.  It is a trial and error type career, like kids, we must touch the hot stove/oven, even when our parents told us not to.  Once touched, we pray we learn our lesson and never do it again.  I was no different as I began to learn how to trade.  I would try something, find out what works, what does not.  As I began to utilize the technicals of price, pattern and time I began to throw away the other technical indicators that were always talked about.  For instance, stochastics, MACD, RSI and more.  These I tried to use in my first years as a trader but my winning percentage was never more than 60%.  Of course due to my discipline at the time, the losers would often outweigh the winners by 2-3x and we all know that math will not work.  Over time, I learned to make sure I cut my losses, and as I learned a new breed of technicals, I began to let my winners max out on profits.  One of the biggest things I learned was to trust price, pattern and time.   Today I wish to speak a little bit about time and how important it can be in one respect. 

As part of one of the fastest growing financial guidance and education firms out there, one of the biggest lessons we wish to express, is to use the Larger Time Frame Method.  This method is exactly how my partners and I at InTheMoneyStocks.com were able to pinpoint within a week or two the top on the market recently.  The SPY (a good gauge of the S&P 500) was trading for 2-3 weeks between $94-$96.  During this time, President Obama, Treasury Secretary Geithner and the Federal Reserve Chairman Ben Bernanke all stated multiple times that green shoots were sprouting.  The media was singing their praises, mutual funds and hedge funds were dumping hundreds of billions back into the market and a V-shaped bottom seemed to be in place.  At heart we are contrarian thinkers and use psychology as part of our analysis techniques.  Seeing this pumping in the media put us on high alert.  We started looking at the daily SPY chart.  Sure, it looked over bought but let’s face it, a chart of anything can remain that way for days, weeks, months or even years.  After analyzing the daily and seeing mixed signals and signs, we decided to do something most investors or traders lack the common sense to do.  I went to the next bigger time frame.  This is where we made an amazing discovery.

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And use them to fund some gov’t pet project.

From her Question on the main page – “Hillary Clinton is planning to use excess oil company profits to invest in alternative energy.”

With any good business that is to be profitable and successful, any increase in opperational costs is passed on to the consumer as an increase in price. It’s a “Business”, not a “Charity”. If they add more taxes to the oil industry, it will simply trickle back down to the consumers and the American taxpayer will be funding the “Alternative Energy Investments“.

“We will make it absolutely clear” that oil companies who simply boost gas-pump prices to offset the tax will be prosecuted, State Administration Secretary Mike Morgan told legislators who opened their review of Doyle’s 2007-’09 budget.”

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Business hunches are catching on the unfolding attraction of profits offered by alternative energy investments. Their clue comes from highly informed analysis showing that “green” energy production is all systems go to become a multi-billion business by 2013.

The alternative energy frontier has recently expanded its vast horizons. The newly crafted wind turbine technologies, for example, have given us fresh glimpses of how cost-effective wind-powered energy can become. They are gaining support due largely to their superior long-term viability in comparison with what traditional energy technologies offer. With initial successes, industry players are expected to jump on the bandwagon, further fueling possibilities of increased investments in wind technology research and production.

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Having a diverse portfolio is something investors will explain is important. This way, you don’t end up putting all of your money in one place and you can make money through many different avenues. One of the areas people are considering is investing in alternative energy stocks. This may sound like a risky venture, but any time you invest your money there is no guarantee you are going to get a positive return. Alternative energy is the wave of the future and with the rise of new companies, this could be a very profitable market. Don’t turn your back too quickly because many investors aren’t.

Analysts’ forecasts are favorable in this area. They say by 2013 it could become a $13 billion dollar industry. There are many ways to look at that. The bright side is that if you find a nice little start up company, you might have on your hands the next Microsoft. That means this tiny company became a conglomerate overnight with a beat on the market. Of course, that is always the dream and rarely happens. Realistically, these small companies could hold lots of potential, especially when a form of alternative energy is picked as the course of the future.

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