Dear Student,
Last week, I touched on how earnings season can create ripple effects across entire sectors, not just individual stocks.
And for this week’s Q&A, as promised, we’re going to take a deeper dive into another common mistake investors and traders alike make every single day – trying to find the “perfect stock” to trade or invest in.
Big-name stocks, like the Magnificent “Mag” 7 – Nvidia (NVDA), Meta Platforms Inc. (META), Alphabet Inc. (GOOGL), Apple Inc. (AAPL), and Microsoft Corp. (MSFT) – will always drive headlines. They’re familiar, household names, and they grab attention and viewership for financial news outlets… But they’re not the only ones.
In fact, as of early this year, there are over 7,000 publicly traded companies between the New York Stock Exchange (NYSE) and Nasdaq (NDAQ). And globally? Over 58,000 companies across all stock exchanges!
Now, as you can imagine (or maybe even experienced), trying to find that “perfect stock” or “perfect trade” can feel like searching for a needle in a haystack. So, instead of spending hours stressing over something that doesn’t exist (what’s right for one investor may be wrong for another) – shift your focus to the “haystack” instead.
Here’s what I mean…
Think of the stocks as the needle in our analogy and the broader market – or in this case, exchange-traded funds (ETFs) – as the haystack.
ETFs track an index or a basket of stocks/assets in specific industries or sectors, similar to an index fund. They trade just like individual stocks, and you can even trade options on certain ETFs – something I personally love to do.
I also love ETFs because they offer diversity and spread out the risk. If one stock in the ETF underperforms, others in the basket can help offset it, making the ETF less vulnerable to a big drop in value compared to holding a single stock.
Trading an ETF can be just as straightforward as trading shares of stock, but it gives you much broader exposure.
The best part?
There are plenty of bullish strategies you could explore based on different strike prices and expiration dates. And next week, I’m going to show you two different ways to trade them.
Until then…
Tom Gentile
America’s Pattern Trader
