Guide to Stock-Picking Strategies
AAA
  1. Stock-Picking Strategies: Introduction
  2. Stock-Picking Strategies: Fundamental Analysis
  3. Stock-Picking Strategies: Qualitative Analysis
  4. Stock-Picking Strategies: Value Investing
  5. Stock-Picking Strategies: Growth Investing
  6. Stock-Picking Strategies: GARP Investing
  7. Stock-Picking Strategies: Income Investing
  8. Stock-Picking Strategies: CAN SLIM
  9. Stock-Picking Strategies: Dogs of the Dow
  10. Stock-Picking Strategies: Technical Analysis
  11. Stock-Picking Strategies: Conclusion

Stock-Picking Strategies: Introduction


When it comes to personal finance and the accumulation of wealth, few subjects are more talked about than stocks. It's easy to understand why: playing the stock market is thrilling. But on this financial roller-coaster ride, we all want to experience the ups without the downs.

In this tutorial, we examine some of the most popular strategies for finding good stocks (or at least avoiding bad ones). In other words, we'll explore the art of stock-picking - selecting stocks based on a certain set of criteria, with the aim of achieving a rate of return that is greater than the market's overall average.

Before exploring the vast world of stock-picking methodologies, we should address a few misconceptions. Many investors new to the stock-picking scene believe that there is some infallible strategy that, once followed, will guarantee success. There is no foolproof system for picking stocks! If you are reading this tutorial in search of a magic key to unlock instant wealth, we're sorry, but we know of no such key.

This doesn't mean you can't expand your wealth through the stock market. It's just better to think of stock-picking as an art rather than a science. There are a few reasons for this:
1. So many factors affect a company's health that it is nearly impossible to construct a formula that will predict success. It is one thing to assemble data that you can work with, but quite another to determine which numbers are relevant.

2. A lot of information is intangible and cannot be measured. The quantifiable aspects of a company, such as profits, are easy enough to find. But how do you measure the qualitative factors, such as the company's staff, its competitive advantages, its reputation and so on? This combination of tangible and intangible aspects makes picking stocks a highly subjective, even intuitive process.

3. Because of the human (often irrational) element inherent in the forces that move the stock market, stocks do not always do what you anticipate they'll do. Emotions can change quickly and unpredictably. And unfortunately, when confidence turns into fear, the stock market can be a dangerous place.

The bottom line is that there is no one way to pick stocks. Better to think of every stock strategy as nothing more than an application of a theory - a "best guess" of how to invest. And sometimes two seemingly opposed theories can be successful at the same time. Perhaps just as important as considering theory, is determining how well an investment strategy fits your personal outlook, time frame, risk tolerance and the amount of time you want to devote to investing and picking stocks.

At this point, you may be asking yourself why stock-picking is so important. Why worry so much about it? Why spend hours doing it? The answer is simple: wealth. If you become a good stock-picker, you can increase your personal wealth exponentially. Take Microsoft, for example. Had you invested in Bill Gates' brainchild at its IPO back in 1986 and simply held that investment, your return would have been somewhere in the neighborhood of 35,000% by spring of 2004. In other words, over an 18-year period, a $10,000 investment would have turned itself into a cool $3.5 million! (In fact, had you had this foresight in the bull market of the late '90s, your return could have been even greater.) With returns like this, it's no wonder that investors continue to hunt for "the next Microsoft".

Without further ado, let's start by delving into one of the most basic and crucial aspects of stock-picking: fundamental analysis, whose theory underlies all of the strategies we explore in this tutorial (with the exception of the last section on technical analysis). Although there are many differences between each strategy, they all come down to finding the worth of a company. Keep this in mind as we move forward.

Stock-Picking Strategies: Fundamental Analysis

  1. Stock-Picking Strategies: Introduction
  2. Stock-Picking Strategies: Fundamental Analysis
  3. Stock-Picking Strategies: Qualitative Analysis
  4. Stock-Picking Strategies: Value Investing
  5. Stock-Picking Strategies: Growth Investing
  6. Stock-Picking Strategies: GARP Investing
  7. Stock-Picking Strategies: Income Investing
  8. Stock-Picking Strategies: CAN SLIM
  9. Stock-Picking Strategies: Dogs of the Dow
  10. Stock-Picking Strategies: Technical Analysis
  11. Stock-Picking Strategies: Conclusion
RELATED TERMS
  1. Security

    A financial instrument that represents an ownership position ...
  2. Series 6

    A securities license entitling the holder to register as a limited ...
  3. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  4. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  5. Strike Width

    The difference between the strike price of an option and the ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
RELATED FAQS
  1. What is the simplest kind of company stock?

    There are many types of companies with publicly traded shares across a range of industries. Stock market investors are hoping ... Read Full Answer >>
  2. How accurate or important is the debt service coverage ratio (DSCR) in evaluating ...

    Both creditors and investors use the debt service coverage ratio, or DSCR, when analyzing the financial condition of a company. ... Read Full Answer >>
  3. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  4. Is there a difference between financial spread betting and arbitrage?

    Financial spread betting is a type of speculation that involves a highly leveraged derivative product, whereas arbitrage ... Read Full Answer >>
  5. How do I place an order to buy or sell shares?

    It is easy to get started buying and selling stocks, especially with the advancements in online trading since the turn of ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!