Stock picking
I’m about to venture into the world of stock picking. I know, the theory is that it’s “bad” to invest in individual stocks, index funds are the way to go, monkeys have as good a shot at being successful, etc. But it appeals to me anyway, so I’m going to go ahead with a very small amount of money. Money that I’m willing to lose completely. (But of course I hope I’ll prove to be the exception.)
I started by looking at nearly every stock on the NYSE, with the exceptions of ETFs, obvious oil companies, and most banks. While I think that there’s definitely money to be made in oil in the near future, I’m not too comfortable with the idea. ETFs were out because if I’m going to be going against conventional wisdom and picking individual stocks, I want them to be stocks in companies that do something other than invest. (Although Generation X Finance’s recent article gave me pause on both counts.) Banks were out because I don’t like them. But that still left way more than a thousand stocks. So I looked at the 2 year charts for those.
From that, I came up with a list of around 150 initial possibilities from the NYSE. That list was quickly narrowed down to 44 after looking at their charts at different time periods. Now I’m at the hard part. My second run through consisted of eliminating companies that I disliked for social reasons. (Companies like Monsanto, Nike, weapons suppliers, pesticide companies, etc.) Monsanto really hurt to remove because its chart looked so pretty to me.
But where do I draw the line with social responsibility? I’m essentially trying to pick the least of the evils, since nearly EVERY company impacts the environment in some negative way. I mean, just by getting up and driving to work, I impact the environment negatively. It’s pretty hard not to. At any rate, I’m down to about 35 stocks now. From there I’ll chose one or two to start with that I feel might be most promising.
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January 4th, 2008 at 9:03 am
Welcome to the world of stock selection. Sometimes it feels like the world is against you on this as index funds are the safer bet. However, with a good core portfolio of index funds individual stocks can be fun.
Did you look at dividends in your analysis?
January 4th, 2008 at 2:07 pm
Keep trusting in yourself that you can succeed against the norm.
Stock market average returns are by definition made up of some stocks that do very well and others that tank. You can improve your investing skills and increase the chance of picking the great ones. Every market cycle has lots from which to chose.
If you haven’t aleady, either head to your local library or invest $1.50 at the grocery store for a copy of the newspaper, Investor’s Business Daily. I would never enter a trade without checking out my chosen stock there first.
January 4th, 2008 at 3:38 pm
Dividend Guy, nope, I haven’t looked at dividends. That should probably be the next step…
Neumes, thanks for the tip.
January 4th, 2008 at 4:28 pm
Over the years my husband and I have chosen stocks by analyzing what we use and the companies the products come from. For instance, we bank with Wachovia starting in CT, ending in FL and have never had a bad experience. So, we invested in their stock (yes, it’s dropped, but it will come back). We also look for companies that we feel will be around for a long time – currently those dealing with diabetes (babyboomers), artificial limbs (due to the Iraq situation). We feel it’s best to invest in what you know about.
January 4th, 2008 at 4:47 pm
Investing in individual stocks is great- if you have the time to watch them and if you set stop loss orders. Generally, I’ll set a stop loss of 20% on every stock I buy, sometimes a bit higher percentage depending on the stock. You can always make your money back with a winning stock, but a total loser will sink your portfolio for good.
As for social investing, I don’t think much about it myself since our tiny little investments in these companies really have no effect on them whatsoever. That being said, I do draw a line- I would not for example invest in a company like Playboy Magazine – more for the reason that I wouldn’t want people thinking I endorse it, rather than the actual effect my investment would have.
Anyway, just my two cents. Good luck!
January 6th, 2008 at 5:08 am
Isn’t holding individual stocks kind of like having a personal mutual fund except your the “professional” stock picker?
As Eden said “You can always make your money back with a winning stock, but a total loser will sink your portfolio for good”. This isn’t actually true. A loser can be sold and written off to offset capitol gains in your taxes and the winner hung onto for years.
Over the long haul, dividend paying stocks can add to your portfolio. I am a small investor and I look for a dividend paying stock where the dividend will give me around one additional share a year.
I also advocate dealing strictly with discount brokers to keep your costs down. Sharebuilder has dividend reinvestment where ScottTrade does not. Sharebuilder has a more limited selection of available stocks to buy. ScottTrade does not.
One other advantage of individual stocks is that you can buy into companies that a mutual fund can’t touch.