01) Stock Picking Strategies

by · August 17, 2010

Playing the Stock Market is thrilling. This is why when it comes to personal finance and the accumulation of wealth, investing in stocks is perhaps one of the most talked about topics regarding these subjects. However, we all know that the Stock Market has its ups and downs which is why investors want more of the ups and less of the downs.

Let’s explore the world of stock-pricing by learning some of the most sure fire ways of finding good stocks. An investor’s aim to achieve a rate of return that is greater than that of the market’s. In order to reach this aim, an investor has to find stocks with specific criteria.

Before going further, let is be stated that there is no method or strategy that is 100% guaranteed to yield profit. Simply put, there is no sure fire way of picking stocks. It’s a common misconception, especially to newbie traders that once a system works, it will always work. Remember that no system is infallible and there is no magic formula when it comes to the Stock Market.

But, this does not mean that you cannot profit from picking stocks. A lot of people have done so and continue to make a living out of investing in stocks. Stock picking is an art rather than a science and the reason for this are as follows:

  • A company’s over all financial health is not measured by profits alone. There are other factors that contribute to a company’s financial standing. Profit can be easily measured but how do you put monetary value on a company’s reputation? There are quantitative values that you can work with, but what about qualitative factors such as staff, competitive advantage and even environment? Building a system to measure all of this is simply impossible.
  • The Stock Market is not only driven by companies, they are also run by people. Humans are the basic force that powers the volatile world of the Stock Market. And because of the human factor, stocks do not always do what you intend for them to do. People are driven by a wide array of emotions like confidence and fear which need to be factored into the whole formula.
  • The tangible and intangible forces that are put to play in the world of stocks are simply too unpredictable to rely on a single fool proof system. There are too many factors that affect and interact with each other which make the Stock Market an exciting and dangerous world to be in.

At the end of the day, there is no scientific way of picking the right stock. Most people pick stocks by “gut feeling” or as a “best guess”. There are a lot of theories that abound, and sometimes two opposing theories will work at a certain time. If you want to pick stocks consider some personal preferences like time frame, risk tolerance and how much you are willing to risk (money wise) and devote (time wise) to picking and investing in stocks.

With everything said you might be asking why would invest in stock anyway? Think of it this way: Microsoft had its IPO in 1986. If you invested and had simply held on to that investment, your return would have been 35000% by 2004. In other words, your $15,000 investment would have become $5.25 million in 18 years later! It’s phenomena like that which has had investors always searching for the “next Microsoft.”