Stock Picking 101

It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.

Considering the Microsoft investors who put in $10,000 in 2004 have $3.5 million today, it’s no surprise that top financial advisors are out on the hunt for “the next big thing.” Industry-wise, some of the best stocks are in title insurance, retail, hotels, basic materials, movie production, confections, jewelry stores, silver, resorts and casinos. By contrast, some of the worst stock picking industries are wholesale, banking, auto parts wholesalers, food, diversified utilities and aluminum. Some people believe that “industries don’t fall — companies do,” so they try to spread their dollars across one dominant industry or two that seem to be bringing in decent returns consistently.

There are many different types of stock picking strategies. Some of the most common include Fundamental Analysis, Qualitative Analysis, Value Investing, Growth Investing, GARP Investing, Income Investing, CAN SLIM, Dogs of the Dow and Technical Analysis. While there is limited space to delve deeply into these complex strategies here, more information can be found at Investopedia (www.investopedia.com/university/stockpicking/stockpicking1.asp). Even when consumers learn financial investment techniques, there is no guarantee, however. According to Investopedia: “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.”

In these troubled times, some people are wary about stock picking and reasonably so. A number of people who tried to “get in on credit card investing” wound up devastated when the financial market unexpectedly collapsed. The same holds true for millions of citizens who were told that real estate was a sure bet. Perhaps the most important lesson from this whole thing is that there is no such thing as a “sure bet.” All stock products are merely a gamble; an educated guess. Sometimes these gambles can bring in handsome dividends, while other times they yield unrecoverable losses. Even so, there is no better system to raise residual money. Bonds and bank account interest accrue at such menial rates, it’s hardly worth one’s time; yet a carefully considered portfolio aimed at long-term rewards is the best system we’ve got.

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