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GO-TO STOCKS

I’m uncomfortable in crowds. Attending a convention in Dallas this past week, I struggled sitting in a packed auditorium, or mingling in a room of a couple of hundred people at a one of the dinners. At my church I attend a Bible class of around sixty people, and though I know almost all of them, and they are really nice and friendly, every Sunday I bolt in the door and make a beeline to a seat along the wall in the back of the room, where I will find a small group of friends I know and love, and where I can have one on one conversations in a quiet, more intimate setting.

I admire and respect politicians, celebrities, leaders of large organizations, and others who possess the gift of socializing in large gatherings. I’m fascinated at how they work a large room. They seem to glide effortlessly across the floor, making everyone they come in contact with feel important and special. I once asked a person with this gift to give me some of his secrets to owning a large room, and he told me there were two keys to “touching” a room. He said to work a room successfully one must a) treat each person you meet like they are the only person in the room, and b) keep moving.

Now I’m no introvert. Give me a group of no more than four or five people and I’m perfectly fine. I just don’t do large settings well. “Large room socially awkward” would be the term I would use to describe myself. But give me a more intimate setting, just one or two other people, three tops, that’s my wheel house.

I think I have somewhere close to 10,000 acquaintances I know, or have some sort of connection. They may need to remind me their name, and I may have to do the same, but we can easily converse with one another. About 1,000 of those people, or around 10%, I would consider my friends. Someone I would enjoy going to lunch with, or sitting next to at a function. Then there are probably around 200 of those friends that I would consider my inner-circle, people I know rather well, enjoy spending time with, and who I believe I could call on if needed, and they the same. But of the 200, I probably have around 20 devoted, dear companions I would call my go-to friends, my blood friends. They are the people I want to spend my time with, folks I know intimately, warts and all, and who I turn to in times of crisis. My go-to friends enrich and bless my life in ways I just can’t express.

My bet is you are probably the same. You have lots of acquaintances and friends, along with that tight inner-circle and go-to friendships that make your life rich and complete.

I wonder if the politicians and celebrities and CEO’s and all those others gifted in large social gatherings ever have the opportunity to get past the hundreds and thousands of acquaintances they are bombarded with every day, and are able to enjoy the blessings of go-to friendships. I hope so.

When it comes to trading, I’m an inner-circle and go-to investor. There are close to 5,000 stocks traded on the NYSE and Nasdaq. After thirty years I know just about all of them. But if all the U.S. stocks were sitting in a banquet hall there’s no way I would want to meet every one of them. It’s just too overwhelming. Instead, I have a list of around 350 stocks that I’m very familiar with. In fact, I look at each and every one of their chart patterns at least once a month, if not every week. I get to know their patterns, their tendencies, their quirks. If and when the opportunity presents itself, I have no trouble in pulling the trigger on a trade in any one of them. It’s my stock universe, my inner-circle if you will. If it’s not one of the 350, I’ll pass.

But of those 350 has emerged a group of around 30 “go-to” stocks that make up the great majority of my trades. As a matter of fact, in the past ten years, over 80% of my trades have come from these go-to stocks, while the remaining 20% have come from the other 320 inner-circle pals. This trading strategy has worked well for me over the years. I find I’m much more comfortable and confident in trading my tight knit group.

I’ve seen some highly successful traders who trade one security. Just one. Others I know trade only three or four stocks and make lots of money doing so. My father has done quite well trading three stocks this past year.

In my experience, the politician-celebrity-CEO strategy of working the stock market room just doesn’t work. I have yet to meet anyone who successfully invests or trades from the entire universe of U.S. stocks. Granted I know lots of people who trade from the entire group, but no one that does it successfully. They may be encyclopedias of knowledge about just about every company out there. They understand their balance sheets and income statements better than their financial officers, and could win any trivia games about them. And though they make impressive and entertaining guests on CNBC, they tend to get overwhelmed with their superior knowledge and just chase their tails, never actually making any money.

The trick of the trade is to cut through the maze that is the 5,000 U.S. stocks all lined up along Wall Street, each one dying to meet you and begging for your attention. When it comes to your hard earned money, my advice is that you not play politician or celebrity or CEO and try to work such a large and noisy room. Rather search for a seat at the small table of stocks over in the corner of the room, and get to know them really, really well. Spend lots of one on one time with each of them over several months and years, and you will eventually begin to understand their tendencies and patterns, quirks and nuances.

In trading, I believe less is more. More stocks don’t lead to more money. It just takes a few. It’s the few stocks you get to know really well that can show you the money.