It’s easy to get tangled in the buzz of hot stocks every day, but picking a winner requires some serious work. When picking stocks, things like luck and coincidence can only take you to a bridge, not help you cross it. The real success lies in understanding how to make a smarter investment. If you’ve tried and tested stock picking and tasted sour losses, then it’ time to gear up and unveil some best kept stock picking secrets. Following these secret mantras will not just help you make big bucks, but will also stabilize your profitability.
Know What You Own
Take it from the experiences of the Mad Money host Jim Cramer, investing in a company without knowing it inside out is always going to pull you down in a stock market. This doesn’t just involve knowing the products and services of the company, but also the ups and lows, the management strategy, future growth prospects, and past successes and failures. A company’s CEO also plays an important role here. A famous CEO is not necessarily an adaptable CEO. In this continuously changing and fast-paced world, a company needs a CEO who can recover from mistakes and improve.
Leave the Past Performance Bias At Home
Dwelling too much into the past performance of a company can mislead you. While it’s true that a stock’s performance in the recent years can be used to study the stock, drawing attention to aspects like a company’s growth trajectory, industry sentiments, and the rudiments of a company could prove to be more fruitful. The successful manager of New York Venture Fund and Selected American Fund Chris Davis agrees. The mantra doesn’t lie in reading past trends, it lies in understanding that the position of stocks on a trend chart only speaks half the story. To unveil the other important half, you need to start from the basics.
Hype Is Only Good For A Reality TV Show
Media publicity and hype cannot control the ways of a stock. If they could make a stock successful, then the stock market would only belong to the big names. But, surprisingly the list of winners in the stock market usually belong to the dark horses. Take a look at the list of 5 S&P stocks with highest returns in the year 2014. Bet you don’t even know half these companies exist.
|Company||Price/Forward EPS Estimate||Total Return YTD|
|Forest Laboratories Inc.||20.8||60%|
|Nabors Industries Ltd.||13.5||54%|
|Electronic Arts Inc.||15.6||52%|
|Keurig Green Mountain Inc.||27.8%||50%|
|Newfield Exploration Co.||14.2||49%|
- Keep Your Mind Open To The Black Swans
More often than not, you’ll see people trembling over the idea of the occasional “black swan” threat in the market. Black swan events are usually considered in the negative image of a war, a natural disaster, a financial collapse, or a bombing. But, in reality these events can also be categorized as enormous positive world events like invention of the internet or the expanded globalization. These events usually have a ripple effect over the market and finances. Black swan events transform the world ahead and open chances for improvement and growth. All you need to remember is that awful things will happen, but glorious things will happen too. The secret of success would be to not panic and balance growth and risk proportionately.
- Look at Fundamental Indicators of Value And Growth
While famous billionaire investor Warren Buffett believes that successful stock picking lies in value-based stocks, investment guru Peter lynch sought companies with higher growth prospects. The secret really lies in combining these both strategies and looking for steadily growing companies that are selling stocks at reasonable prices.