Our investing strategy is a conservative one. We consistently recommend taking the long, rather than the short, view. But clearly not all stocks can be held indefinitely. A good portfolio is never a completely static one.

Bringing in good stocks will obviously invigorate your portfolio. It is equally true that some stocks that fail to perform just aren’t worth holding on to. That leads many investors to ask us just when they should let go of a weak stock and replace it with something new.

Our stock trading advice begins with one important tip. Look beyond the share price when you’re deciding whether or not to sell.

You will never sell at the top or the bottom

There is no simple formula for deciding when to sell a weak performer, regardless of whether your investing strategy is conservative or more aggressive. But there are some guidelines that will help you make the decision.

First, you are never going to sell at the top or buy at the bottom. This is why we are so selective about the stocks we recommend in our newsletters. The better the quality of the investments you buy, the less you have to lose if you decide to avoid selling. The chances of a rebound are much higher with a quality stock.

On the other hand, if you are going to sell, do so because you no longer believe in the quality of the stock, not just because the share price has declined.

Regardless of whether your approach to investing is conservative or aggressive, the quality of your investments matters much more than your skill at selling.

However, you should be quicker to sell aggressive stocks than conservative ones. With stocks we rate as “Speculative” or “Start-up,” it pays to apply our sell-half rule. That’s when you sell half of a stock that doubles in price.

Missing 200% gains through short-term trading

Many investors mistakenly assume that frequent profit-taking is the key to long-term success. Few brokers will disagree with this assumption, since they make money every time you buy or sell. But in the long run, taking profits simply because profits are available is going to cost you money. That’s because of the way the stock market works.

Stock prices rise 10% to 12% a year over long periods, on average, but individual cases and years vary widely. Even good stocks sometimes go sideways for decades, while others turn out to be “ten-baggers,” with gains of 1,000%.

To make serious profits, you need to hang on to your best performers for years. If you are too quick to sell stocks that have gone up, you may avoid some 20% setbacks, but you’ll also miss out on some 200% gains.

You can get Canadian Wealth Advisor, with our advice on leading conservative investments and my #1 Safety-Conscious Pick for 2012 when you subscribe now. And as a new subscriber you can save $50.00 on an introductory subscription. Click here to get started right away.

Investing is not an exact science. That’s why experience and judgment are just as essential as fundamental analysis in successful investing.

That’s also why a balanced temperament is so important. It can keep you on a steady course and help you avoid losses.

Here’s a piece of stock market advice that can help you judge your own temperament for investing.

Consider these three common investor mentalities. Do any sound familiar?

• Statistical bears. These overly cautious pessimists lack imagination. When doing their own investing, they zero in on a handful of statistical measures — earnings, dividends, the length of time the market has been rising and how much it has gained. If they see any sort of resemblance between today’s figures and those of past market peaks, they assume stock prices are headed for collapse.
  
  It’s a mistake to narrow your field of vision when stock investing. Statistical bears take it to extremes. They’re a little like the 19th-century engineers who studied bumblebee anatomy and concluded that bees simply could not fly, according to known laws of physics. The laws of physics never change, but our understanding of them continually expands. That’s also true of our knowledge of stock investing.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

• Starry-eyed bulls. These optimists have too much imagination and too little caution. They accept or develop overblown ideas of the potential of each new stock they invest in, or indeed of the market as a whole. But they neglect to consider what can go wrong. Having invested too heavily themselves, they try to get friends and relatives involved, as well.
• Skeptical optimists. Experience tells these investors that it pays to take an optimistic view, but to temper it with hard-edged skepticism.
  
  These investors study market indicators and statistics, but see them in light of changing accounting rules, as well as trends in interest rates and the economy. They do sometimes get excited about junior stocks, but they recognize that new or unproven companies involve extra risk. After all, mineral finds are valuable because they’re rare, and technological innovations face heavy competition.
  
  Above all, skeptical optimists recognize that they are investing in a company, rather than an economy, a mineral find or a product. We think you should follow their example. Focus your stock investing on companies that make money, pay dividends and serve customers well. In the end, these are your surest signs of a successful investment.

What’s more, if you recognize yourself in the third of these mentalities, it’s likely you have the kind of balanced temperament that will help you succeed in investing.

Our report on bargain stocks is the most recent in a series of reports I’ve written as free downloads on TSI Network. Previously, I wrote “Dividend Stocks: How High Dividend Stocks Can Supercharge Your Income Investing,” which showed investors how to zero in on the best Canadian dividend stocks for your portfolio.

To get started, click here to download your copy of Bargain Stocks: Your Guide to Finding the Best Undervalued Stocks. I’d also encourage you to share the report with a friend.

From time to time, we look at the negative side of investing, on the theory that successful investors learn from mistakes. If you’re more aware of critical errors, you may be able to avoid them altogether or at least cut your losses. Today we examine three common mistakes that most investors will fall into at some time.

• Error #1: Trying to time the market. Our view is that nobody guesses right every time about the direction of the stock market. Some of the most prominent people in the investment world owe their notoriety to a series of correct guesses that could end at any time.
  
  That’s why market timing plays a small role—if any—in our stock trading advice. Instead, we focus on investment quality and portfolio management. We diversify across most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities), we aim to uncover investment quality at a modest price, and we downplay or shun the overhyped investments that you’ll find in the glare of the broker/media limelight.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

• Error #2: Failing to employ healthy skepticism toward transactions that may be made for your broker’s benefit, rather than yours. Many investors assume their broker is honest and has their best interests at heart; if this proves to be untrue, they will shop for better stock trading advice from a new broker. But, you should also look carefully for conflicts of interest that might warp the broker’s judgment.
  
  For instance, selling new issues or new structured products is substantially more profitable for the broker and the brokerage firm than carrying out transactions in existing securities. But it may not do you much good. Existing issues may be better for you.
  
  Sometimes, brokerage firms accommodate institutional clients by buying blocks of stock from them when it might otherwise take days or weeks for the institution to sell on the market at a favourable price. The brokerage firm then takes the stock into inventory and offers its brokers an extra fee or some other inducement to sell it to their own “retail” clients.
  
  Respectable brokers would only do this with respectable stocks, of course. But the opportunity to earn an extra fee (and curry favour with the boss) can lead some brokers to make recommendations that are more for the broker’s benefit than the client’s.
• Error #3: Letting a concept distract you from investment quality. It’s easy to fall in love with the premise/concept that makes a junior stock attractive, so much so that you ignore dismal financial developments. It’s not stock trading advice we can recommend. Yet it happens all the time with gold explorers, cancer-cure stocks, and the many change-the-world technology stocks whose technologies just don’t work.
  
  Buying a profitless solar power stock, for example, is not an effective way to protect the environment. To help the environment, invest wisely, then donate some profits to environmental causes.

If you’d like me to personally apply my time-tested investment advice to your portfolio, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

There is one very important question we get from investors on a regular basis. How often should they sell investments they own and buy new ones? Our answer never varies. Do it as rarely as possible. That’s because turnover in your portfolio cuts into your profits.

You face three costs every time you buy and sell a stock:

1. Brokerage commissions: Every transaction you make in your portfolio involves brokerage commissions or similar costs, even if these costs are hidden or built into the price you pay or receive.
2. Losses to the bid/ask spread: If you want to carry out a transaction right away, you have to accept the highest available “bid,” or pay the lowest “offer.” You can enter your own bid or offer. But this means you have to wait for another investor who is willing to do business at your price. Meanwhile, prices could move against you.
3. Taxes: If you sell at a profit in your taxable account (outside your RRSP or tax-free savings account), you usually have to pay capital gains taxes.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

Stock trading advice: Adding up the numbers for portfolio turnover

To measure your portfolio turnover, add up the value of all the investments you bought during the year and all the investments you sold. Next, add the beginning and year-end values of your investment portfolio. Divide the first number by the second.

For example, say you sold $24,000 of investments in 2010. You held on to $4,000 to pay capital-gains taxes, and bought $20,000 of investments. That’s a total of $44,000. Your portfolio is worth $55,000 at the beginning of the year and $62,000 at year’s end, for a total of $117,000.

Now divide $44,000 by $117,000. The result: 37.6%. That means you replaced an average of 37.6% of your portfolio in 2010. That’s on the high side. Many successful investors have portfolio turnover of 25% or less a year—often much less.

Our stock trading advice: It pays to seek out stocks that you believe you will be prepared to hold on to indefinitely. You’ll change your mind on some of them, of course. But you’ll hold others for decades, and these stocks will give you your biggest profits.

As a member of TSI Network, you may have already seen “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.” If you haven’t yet read this new free report, click here to download your copy today. I’d also encourage you to share this report with a friend.

Investors often ask how we have managed to recommend so many stocks over the years that get taken over. One key is that we aim to recommend stocks with hidden assets — assets that attract less investor attention than they deserve.

That gives buyers a bargain. It also attracts takeover bids.

Stock trading advice: The hidden asset that gave us a takeover double

Identifying hidden assets allowed us to achieve a “takeover double” on Mosaid Technologies, a recommendation of our Stock Pickers Digest newsletter.

Mosaid mainly licenses computer chip and telecommunications technology, including patents for technology used in smartphones and laptops.

We first recommended Mosaid in our May 2010 issue of the newsletter at $22.18. The recent takeover of this stock gave us a 107.4% gain in just 18 months. Here’s how it happened.

While not a widely followed stock, Mosaid had a key hidden asset in its patents. It holds about 1,651 patents as well as 996 patent applications.

When we first recommended Mosaid, we recognized that patents would become increasingly important to technology companies. That’s because they let them protect their market shares from rivals. Owning a large number of patents can also help established leaders keep out new competition.

What’s more, a large patent portfolio gives technology companies the material they need to launch countersuits to defend themselves against patent infringement lawsuits.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

This summer, Mosaid became the object of a bidding war.

It was launched when Wi-LAN (Toronto symbol WIN) made a hostile bid of $38 a share. Subsequently, Wi-LAN sweetened the bid by 11% to $42 a share.

The bidding war came to an abrupt end when private equity firm Sterling Partners made a friendly bid of $46 a share.

On October 27, 2011, Mosaid accepted Sterling’s bid and we recommended that our subscribers tender to that bid. The takeover was complete and so was our takeover double.

If you are looking for proven stock trading advice on aggressive growth stocks – including takeover candidates – you really should have a subscription to Stock Pickers Digest.

You can save $50.00 off the regular rate with our introductory subscription (exclusively for new subscribers). The latest issue gives you our very latest analysis—and clear buy/sell/hold advice—on 20 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. Click here to take advantage of our special subscription offer.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re an aggressive or a conservative investor, these weekly updates are designed to give you specific investment advice and stock investing tips. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “Often-quoted investment sayings are not always useful – and can actually be harmful.”

Most investor sayings or rules have some truth, logic or value to them. That’s why investors keep repeating them until they become investment clichés. A cliché can be based on truth – that’s why it is repeated so often. But the truth and logic of any given saying may be irrelevant to your investment goals, particularly if you are a conservative investor.

Stock investing tips: How one investment ‘rule’ could kill your profits

The value of investor rules or sayings may be psychological rather than financial. Still, there is always a risk that they could override your best judgment at precisely the wrong moments, and lead you to do things that undermine your investment success.

Here’s an example of one often-quoted saying you may have heard with stocks that have moved up following the market downturns of the past few years: “You never go broke taking a profit.”

This is true only in an extremely narrow sense. The act of “taking a profit” (or selling an investment at a higher price than you paid for it) certainly won’t, in itself, put you into bankruptcy. However, investing would be easy if all you had to do was avoid going broke.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

In our view, your goal, particularly if you take a conservative approach, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meagre profits or losses.

Unsuccessful investors can still make some profits. They just don’t make enough to offset the inevitable losses and leave themselves with an attractive return. This is where the cliché becomes dangerous: If you focus on the idea that you never go broke taking a profit, you may be tempted to sell your best investments whenever it seems the investment outlook is clouding over.

On occasion, you may succeed in selling just prior to a major downturn, and buying back at much lower prices – you’re liable to see misleading stock investing tips that suggest you do just that. But our view is that you will rarely be successful. More often, prices will soon hit bottom and begin to rise. If you buy back, you’ll pay higher prices.

Our investment advice: No one can consistently predict market downturns. In hindsight, market downturns are easy to spot. Spotting them ahead of time is much harder, and impossible to do consistently. After all, if you could consistently spot market downturns ahead of time, you could acquire a large proportion of all the money in the world, and nobody ever does that.

The problem is that you’ll foresee a lot of market downturns that never occur. All too often, the market-downturn clouds disperse soon after skittish investors have sold. Good reasons to sell do crop up from time to time, of course, even if are investing for the long term. But “you never go broke taking a profit” is not one of them.

If you’d like me to personally apply my time-tested approach to your investments, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

1. An unrealistic investment strategy: Some investors, especially newcomers, believe they can buy a few hot stocks (or options or futures), and double or triple their money in a few years. After that, they plan to settle into a low-risk investing style that may only return an average 10% to 12% yearly. But if you could make 200% or 300% in a few years, why would you quit? If you could do it once, you should be able to do even better as you gain experience.
   
   Of course, if you don’t think you can keep it up indefinitely, you should also ask yourself whether you can really pull it off the first time. Our investment advice is that you should take the approach that will work for you more-or-less indefinitely. You’ll want to be sure it suits your circumstances and temperament, that it won’t take up too much of your time, and that it doesn’t require luck or extraordinary circumstances for success.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

2. Buying new issues: We advise staying out of virtually all new issues. They come to market when it’s a good time for the company or its insiders to sell, and that may not necessarily be – and often isn’t – a good time for you to buy.
   
   New stock issues start out with a big marketing push by the firm that sponsors them. When the initial hype fades, hidden risks may begin to appear. This can spur deep price declines in the new issue that go on for years.
   
   Our investment advice is that you should avoid new issues until they’ve survived at least one recession. By then, hidden risk is out in the open.
3. Buying too many “stocks that everybody likes”: When building your stock portfolio, it’s crucial to follow our advice on downplaying stocks that seem to be near-universally recommended by brokers and are getting a lot of favourable media coverage.
   
   Some stocks like these remain popular for years, if not decades. They can be profitable during those periods. But if you invest too much of your portfolio in stocks like these, you’ll often buy in just as they reach their peak.
   
   When these stocks fall out of favour, the drop in your returns can be breathtaking. And it can take years for such stocks to recover.

You can get our latest risk-cutting strategies and clear, plain-English investment advice on stocks in The Successful Investor. The latest issue has our analysis and clear buy-hold-sell advice on 20 stocks. What’s more, you can get one month free when you subscribe today. Click here to learn how.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investment advice, including stock investing tips to help you reduce the risk of more aggressive investing. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “How to cut your risk with ‘thin-trading’ stocks.”

Many speculative or aggressive stocks are inactive or “thin” traders. These stocks may trade a few hundred to a few thousand shares daily, compared to hundreds of thousands, if not several million, for a Canadian bank or a major utility, for example.

You’ll find stocks like these among our recommendations in Stock Pickers Digest, our newsletter for aggressive investing. Here’s what you should know about them.

Thin traders are often more volatile than actively traded stocks, especially in reaction to unforeseen news. These stocks may also have a wider spread between the bid (what you get if you sell “at the market”) and the “asked” (what you pay if you buy). The spread may be 2% to 4% or more, compared to 1% or less for an active trader.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

Stock investing tips: How costs can add up

This wider spread is more of a cost than a risk. Every time you buy and sell, you have to absorb the bid/ask spread as a transaction cost, on top of brokerage commissions. If you trade actively, these costs add up.

It’s less of a problem if you hold for a year or two, or longer, as we generally advise.

Speculative stocks are often thin traders because they have few shares in public hands, or because brokers don’t do research on them. But, as they grow and prosper, they may sell more shares and attract broker attention. If so, trading expands, the spread shrinks, and this increase in liquidity makes the stock more attractive to successful investors. As a result, the stock price may go up.

That’s one reason why we include some thinly traded stocks in with our Stock Pickers Digest recommendations. The best thinly traded stocks have the potential to graduate into the ranks of the more actively traded, and this gives them slightly more profit potential than established stocks, albeit at a cost of extra risk.

We try to help you reduce that risk by being careful about what we recommend. But paying attention to how much a stock trades is one of many important stock investing tips.

If you buy aggressive stocks, you really should have a subscription to Stock Pickers Digest. The latest issue gives you our full analysis, including clear buy/sell/hold advice, on 20 stocks that may be suitable for the part of your portfolio you devote to more aggressive stocks. What’s more, you can get this issue free. Click here to learn how.

Economic forecasts attract far more investor attention than they deserve, in view of the meagre advantage, if any, they provide in terms of investing advice. That’s especially true today in light of the debt crisis that keeps flaring up in Europe and the uncertainty that lingers in the U.S.

Small wonder, then, that most experienced, successful investors feel skeptical, if not downright cynical, about economic forecasts, for three reasons.

1. Accurate economic forecasts are rare — certainly rarer than profitable stock-market recommendations. There are simply too many economic factors interacting in too many ways. That’s why nobody guesses right every time, and even the best economists can be right on in one year and dead wrong the next.
2. Fame as an economist has little to do with forecasting skill. After oil prices got up above $145 a barrel three years ago, many prominent Canadian and U.S. economists predicted that fast growth in India, China and other emerging economies practically guaranteed that oil prices would keep rising indefinitely. Common predictions had oil rising to $200 a barrel and beyond.
   
   Instead of shooting up to $200, the price of oil plunged to less than $50 soon after. It has since risen to around the $90 mark. It may return to its previous highs. As oil alarmists like to say, maybe they weren’t “wrong, just early.” However, if you let the supposed inevitability of $200 oil influence serve as your guide to investing, you lost a lot more than the average investor.

Imagine having me build you a portfolio that’s tailored to your specific investment goals, temperament and financial situation. That's just one of the many ways you benefit when you become a client of our portfolio management services. Backed by my in-house team of investment experts, I’ll work to protect your money during times of market turbulence – and maximize your profits when the market rises. Click here to learn more about how you can profit from our Successful Investor portfolio management services.

3. Even when an economic forecast is right, it still may not offer helpful investing advice. That’s because the stock market anticipates economic trends much better than any economist, and moves up and down ahead of them.

Our investment advice: Peter Lynch, one of history’s all-time top mutual-fund managers, summed it up best when he said that, “If you spend 12 minutes a year worrying about economics, you’ve wasted 10 minutes.” Economic statistics and reports can provide clues to investment risk and opportunity, and predictions and forecasts may make interesting reading. That doesn’t make it a sound piece of investing advice. The quality and diversification of your investments are the keys to your long-term investment results.

You can get our latest analysis, including our clear buy/sell/hold advice on dozens of Canadian stocks you may be considering buying in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.

This week, one of the members of our Inner Circle asked for my stock investing advice on a Canadian company in the medical field that recently converted from an income trust to a corporation. Here is my reply.

Q: Good morning Pat. I would like your advice on Medical Facilities Corp. They have recently made some changes and I would like to know if you think this is a good company to invest in for the long term. Thanks.

A: Medical Facilities Corp., symbol DR on Toronto (www.medicalfacilitiescorp.ca), owns majority interests in four specialty surgical hospitals located in South Dakota and Oklahoma, as well as an ambulatory surgery centre in California.

The specialty hospitals perform scheduled surgical, imaging and diagnostic procedures. Their revenue comes from fees they charge for the use of their facilities. The ambulatory surgery center specializes in outpatient surgical procedures. Patients typically stay in this facility for less than 24 hours.

In the three months ended June 30, 2011, Medical Facilities’ revenue rose 6.2%, to $54.3 million from $51.2 million (all figures except share price and market cap in U.S. dollars). Cash flow per share rose 6.3%, to $0.34 from $0.32.

As a member of my Inner Circle, you will get individual answers to your investment questions. In fact, you will get virtually all the investment advice I have to give. You will have access to all of our advisories – The Successful Investor, Wall Street Stock Forecaster, Stock Pickers Digest and Canadian Wealth Advisor – and full access to the members-only, password-protected Inner Circle section of The Successful Investor Network website.

Although my team carefully researches all the stocks that members ask about, I personally review each and every recommendation. To ensure this close personal attention, only a limited number of members can be admitted to our Inner Circle. Under the pressure of world events, even more investors are asking for my personal investment advice. We are nearing our membership limit already. Click here to secure your membership in the Inner Circle right away.

Stock investing advice: Medical Facilities faces stiff regulatory challenges

Medical Facilities will benefit from rising demand for its services as the U.S. population ages. Moreover, physicians who practice at its facilities retain a minority stake in the company; that adds some continuity to Medical Facilities’ operations. However, the company’s health-care facilities are subject to numerous and constantly changing legal, regulatory, professional and private licensing, certification and accreditation requirements. That adds an element of uncertainty to its operations.

The company converted from an income trust on June 1, 2011. It continues to pay a high dividend, and the shares yield 11.0%. However, it may need to cut that high dividend in the near future.

Pat gave his recommendation on Medical Facilities Corp. in this week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)