How to Pick Stocks SuccessfullyPicking stocks — winning stocks — is both a science and an art. The science comes from rigorous analysis of the fundamentals of the company. The art comes from being able to predict its future prospects with a high degree of success. We're going to look closely at the different dimensions that show you how to pick stocks that will generate excellent returns. Some legitimate questions that arise when you first consider investing are: "Is this really speculation? Gambling? Is the stock market any different from a roulette wheel or black jack table?" Let's dispel some of these doubts here and show you why stock investing, if you know what you're doing, is much safer and profitable in the long run.
The stock market, while open to everyone with money to invest, should not be entered into unless you satisfy some basic prerequisites. The reason you need to do this is to ensure that you're getting the most out of investing ... and getting to keep as much of it as possible. We've tried to distill the advice found on this pivotal page, as well as the rest of our website, in a nutshell .... find great companies at attractive prices. This advice, when you come to think about it, is not very different from what brilliantly successful investors like Warren Buffett, Peter Lynch, and Ben Graham, among others, have been talking about for years. How do you find winning companies to invest in? Let's take a look at the concept of "economic moats" to understand how we go about doing this. Based on the fundamentals of a company, what is its stock price worth? Our stock valuation section covers, in great detail, popular models used to evaluate this. You've pin-pointed some great companies to invest in. You've gone ahead and estimated how much their stock price should be trading at. If the current price is very close to your estimate, are you ready to dive in? Not quite. What if your estimate was way off? What if, going forward, economic realities play out differently from uour assumptions? You need some kind of a safety net to minimize your downside .... you need a "margin of safety." Diversification has a lot of advocates in the investing world. The pundits never tire of advising you to ensure sufficient diversification. Diversification probably works if you pick stocks without really doing your homework. But when you know how to pick stocks well, it can get in the way. We will address the extent of diversification that we consider optimal. Particular attention will be paid to the danger of over diversification.
We've covered a lot of ground here and gone into details on how to pick stocks successfully. We hope you will be able to practice these suggestions and stick with what works best for you.
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