I got in a rather, ahem, animated discussion with my friend about my investment strategy. Essentially it came down to this; he believes you should simply buy good stocks. Deciding to buy or sell on a 5% move is simply arbitrary, based on nothing, and doesn't point you towards good companies, good stocks, or winning investments. Simply buying stock in good companies is a much better, much more practical strategy.

You know, the really hard thing about this is, he is essentially right, and everyone knows it.

Everyone knows how to invest. All you do is buy low and sell high. Everyone knows to buy good stocks or stocks that are going to go up. No investor EVER has invested in a stock because they it was going down or going to zero. Every investor ALWAYS thinks their investment is going to go up. Investing should be dead easy, but it isn't.

Why isn't easy? From personal experience I think some of the reasons are;

• we jump in too soon without looking at the stocks trend
• we are unwilling to sell losers, hoping they will turn around

 All I am proposing is a way to mitigate the impact of these two human traits. You still need to find good companies to invest in.

So, you've found a stock that you think is a great investment, and that your adviser thinks is a great investment. When do you invest? All I'm saying is you invest when the stock has shown it is going up, when it is in an uptrend.

Why 5%? You could choose any percent really, but much less than 5% and you will be chasing and reacting to noise. Much more than 5% and you are giving up too much potential profit. Remember, if you do wait for a 5% rise before buying and a 5% drop before selling, you are potentially giving up 10% profit. But you can choose whatever percent you want; and keep in mind, it may be different for different stocks, sectors, or times.

Look at it this way; this is the cost of capital and profit preservation.