Revisiting Process - what is the 'right' process?

As many of my regular readers know, I’ve been known to say (and write) that I don’t like process for process sake.  Of course, a good process is a good thing.

But…what is a good process?

Is it one that works?   One that gets the job done?  Or…is ‘good’ measured in some other form?

Of course, if a process works it can be considered good…but it is the best process?  Good question right? 🙂

My measurement of ‘good’ is this:  Is the process the best one for you and your organization?

If yes…good for you.  If no…fix it.

But..before you can fix it, you’ve got to understand whether its the right process don’t you?

A million processes…which is right?

I’ve been moving back into trading the stock market recently.  Nothing major…very small amounts of money and its something I enjoy doing in my spare time (which isn’t much these days).  There are a million different ‘systems’ out there for selecting stocks/options with most of them proclaiming themselves to the ‘best’ stock picking system.

At the core of stock selection systems are two main methods of analysis: fundamental analysis and technical analysis.  Of course, there are some systems that combine the two forms of analysis but for the sake of simplicity, let’s stick with these two systems as the core of our stock selection processes.

Some investors argue that fundamental analysis is the only way to go.  They argue that the only way to select, and own, a stock is to find those companies that have sound fundamentals (according to their definition of sound fundamentals).  You then purchase that stock and hold it.  Some argue holding it forever…others argue that you should hold it for a certain period.  Many many different processes & systems for selecting and holding stocks using fundamental analysis.  If you want to learn more about fundamental analysis, check out the wide selection of books on fundamental analysis on Amazon.com (affiliate link).

On the flip side, many argue that technical analysis should be the main focus of your stock selection system.  Some traders argue that you only look at technicals but most of the good traders out there that use technical analysis keep one eye on the fundamentals and the other on the technicals.  Using technical analysis to select stocks, your main focus us reviewing the technical indicators using charts, stochastics and other mechanisms. Technical analysis is something that many technical people (engineers, developers, etc) can really get into because all the numbers, charts, indicators and graphs.  If you want to learn more about technical analysis, check out the wide selection of books on technical analysis on Amazon.com (affiliate link).

Within both camps are many many (many) different selection processes & systems.  Some are simple, like the CAN SLIM fundamental analysis system, while some are extremely complex and require large computer systems to analyze and determine the best entry point.  Some systems are manual and some are automated and some are a mixture of automation and manual review.  Some systems focus on stocks only while some focus on stock options.

Needless to say…there are a ton of different processes for selecting stocks/options and other investment vehicles.

But which one is right?

It depends.

You knew I’d say that, right? 🙂

It depends on your attitude towards investing.  It depends on your level of risk you are willing to take (or can take).  It also depends on your investing horizon….how long can you wait for a return? Are you retired and need income?  Or…are you 25 and can wait 30 years to take your gains?  Lots of different things to think about while trying to find the ‘right’ stock selection & investing system/process.

So what is a person to do?  Try them all out?  Can’t do that…too many of them.

But…what you can do is think about what fits your approach to investing and life.  What works best for your situation.  Do you want to keep an eye on your investments or are you OK with investing your money and letting it ride through the up & down cycles?  Your answers to these types of questions will help determine which approach is right.  Your answers will help you select the right process for you.

Choose the wrong process for selecting your approach to investing and you could be bankrupt. Select the right process…and you might go bankrupt too…but you would’ve at least had the best opportunity to succeed.

Selecting the right process

Selecting the right process for investing is much like selecting the right process for your organization.  Just because a process works for your buddy at his company doesn’t mean it will work for you at your company.  Just because it worked for you last year, doesn’t mean it will work for you this year.

Processes are a dime a dozen.  Walk into a room full of IT people and ask them what the best process is for “X” and you’ll get about as many answers as there are people.

That said…good processes are a dime a dozen too.  What’s good for one company/person may not be good for you.

Don’t blindly adopt a process because it’s the “standard” or because it worked for you before.  Take some time to think about that process, the steps involved and the people involved. Think about your corporate culture and what types of things work well for your organization.

If you work for a slow moving organization with a ton of bureaucracy, selecting a fast-moving process that requires very little approval from ‘on high’ might not be the best thing.   On the other hand…if you are in a fast moving start-up, you may not want to select a process for selecting and acquiring new technology that you used to use in your Fortune 50 organization.

The right process is different for everyone & every company.  The right process is what works for you, your team and your company.