Stock Picks

How many times have you heard this?

Follow our Stock Picks and make over 1,800% in 3 months!

Or maybe,

Subscribers who followed our Stock Picks doubled their money every 6 months!

Do you wonder if these claims are true?

So do I.

Bear in mind that anyone who picks stocks with that kind of track record would rival Warren Buffett. Clearly such headlines are marketing hype!

So what’s the TRUTH about stock picking?

How do you decide which stocks to pick?

Firstly, you should know that a TON of statistics prove that stock picking is a waste of time. They say at least 80% of the movement in an individual stock can be explained by a movement in the entire market or sector or industry.

If that’s the case then it probably makes no sense to pick individual stocks. Rather focus entirely on a group (sector or industry) which you think will outperform in the future. Then buy an exchange traded fund or mutual fund that specializes in that sector.

If individual stock picking is such a waste of time, how do we explain the existence of such a venerable stock picker as Warren Buffett and the millions of Buffett Clones out there? Clearly there is something to stock picking!

I’ll let you in on a secret.

The way to make BIG money in the stock market is to buy a group of stocks that is totally out of favor with the investing public! Sit on them until the public decides to start buying and raise the price.

For example, Commodity stocks were the unloved and detested group of stocks for many years. 20 years in fact. This drove the valuations down to pennies on the Dollar. That’s the time the smart money began to buy.

As for individual stock picking, provided you have a set criteria to look for, you can do just as good or even better than a market index. Due to research budgets being slashed at big investment banks, a small investor can really discover stocks with lots of opportunity selling for a pittance.

The best place to find stocks using a pre-selection criteria are stock screeners. A stock screener allows you to input parameters e.g. all stocks with price earnings multiples below 15 and industry equals Gold. These tools save a HUGE amount of time when looking for individual stocks. The best stock screener out there for US stocks is the Yahoo Stock Screener and for Canadian Stocks is the GlobeInvestor stock filters.

To find diamonds in the rough may I suggest an excellent book which details an exact criteria to find out of favor stocks. The book is called Contrarian Investing: Buy and Sell When Others Won’t and Make Money Doing It by Anthony Gallea, William Patalon.

Whilst it is unlikely that an investor could consistently achieve the above advertised gains, I believe a disciplined investor with a solid investment approach can outperform the market more often than not with their own stock picks!

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