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10 Things Your Competitors Can Teach You About Stock Picking



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Are you currently a Wall Street whiz? Snacking on 50 stocks of Twitter TWTR -1.7% for breakfast and out of this stock by lunch? This post is not for you.

 

This post is really for the average Joe, attempting to place a few bucks to work on the market or require more control over their investments. These 10 ideas, hints and topics ought to be a fantastic primer for the stock market education. They are not all you need to understand, and will not guarantee success, but they are a great beginning point for any investor.

 

For more fiscal details and ideas everyone should know, check out the Entire show here: 100 Things You Absolutely Need To Know About Money Before You’re 35

 

1) Buy Low, Sell High

Sounds really simple right? And yet investing is a rare part of our financial lives where things becoming cheaper seems like a bad thing. Few buyers are lamenting cheaper prices at the pump amid the fall in oil prices during the last year and a half, however a moderate market fall is treated as the death knell for the bull market.

 

These are facts which are not mutually exclusive: the present bull market will finish, and above almost any long-term horizon stocks have proven to be beneficial investments that generally mill higher.

 

2) There is No Such Thing as a ‘Sure Thing’

 

Oil prices at $100 a barrel are here for the long haul; Alibaba is a world-beating juggernaut that can not be stopped; ESPN is immune to the shifting sands of the cable industry and it’s ability to mint money for Disney will not be in doubt. Just 3 examples of narrative lines once taken as gospel which were shot full of holes.

 

A word to the wise: the conventional wisdom is not always wrong, but it often has horrible timing. A number of this stock market’s best traders on the long run — Warren Buffett, Carl Icahn and their ilk — have put their main bets on businesses from favor or through times of market stress.

 

3) Get Familiar With Filings

 

When some investors may think they have a sixth sense for finding good businesses, the remainder of us have to do our homework. There’s no better starting point than the regular filings public businesses make with the SEC, which can be required to detail everything out of company finances to possible conflicts and risk factors.

 

The yearly 10-K comprises the maximum information, which range from quarterly and yearly fiscal numbers to descriptions of business lines and direction commentary on growth opportunities and prices. Regulatory filings will also detail some senior management changes, acquisitions, and stock transactions by executives or board members.

 

All filings for U.S. people companies, and foreign companies that list on U.S. exchanges, can be found online through the SEC’s EDGAR system.

 

4) Think Long Term

 

Taxes are not the sole reason short-term trading is a loser’s game for most investors. Trying to buy or sell shares based on a quarterly earnings report or an financial data point is a sport for automated trading platforms, not the average Joe.

 

Better chances come when a stock or business is dismissed from the market and languishes despite continuous economic results that will produce a long flow of earnings. Shipping stocks like airlines and railroads have gone through long out-of-favor stretches, simply to churn out significant profits when economic conditions and industry dynamics align.

 

Years of mismanagement from the airline industry caused a string of bankruptcies in the 2000s, but the consequent merger tide made American Airlines, United Continental and Delta Air Lines DAL +0.08% more aggressive and poised to profit from trends like plunging fuel costs.

 

5) Dividends are Your Buddy

 

Apple’s AAPL +0.12% share price dropped from $110.38 to $105.26 in 2015. That’s an 11% decline, but investors that owned the stock all year dropped just 3%. Why? Since Apple paid out $2.03 in dividends over the course of the year.

 

Dividend-paying stocks aren’t immune from losses, but they do offer a degree of insulation that others do not. A word of caution though — abundant dividends that appear too good to last often do not. Only ask owners of Kinder Morgan KMI -0.67%, which slashed its quarterly payout by 75% in December.

 

That’s why he says he will never own a stock that does not pay at least a few of its gains out to investors. (See “Why Kevin O’Leary Loves Dividends.” )

 

6) There is No Fantastic Metric

 

Professional and amateur investors likewise have their favorite measures of value and growth, from price-earnings ratios to profit yields and profit margins. But there’s no single number that divides great stocks from bad ones. A stock that looks cheap at 10 times earnings can visit 5 times in a flash, along with a brassy tech startup that seems expensive at 3 time sales can quickly jump to 6 at a heartbeat.

 

7) A $100 Stock Is Not Expensive and a $5 Stock Isn’t Cheap

 

The price of one share is not the perfect number to assess when deciding whether a stock is a good purchase or not. While triple-digit cost tags may cost too much to get a new investor with restricted capital, loading up on 100 $1 stocks is not always a better strategy. Think about investing in grocery shopping — there is a reason you visit the shop with a list instead of just deciding what to purchase based on price tags.

 

8) Taxes Can Take a Bite Out of Your Profits

 

The FANG stocks — Facebook FB +0.18%, Amazon.com AMZN +0.89%, Netflix NFLX -4.24% and Google +0.22% (Enforcement ) — had a great run in 2015, together with returns ranging from 34 percent to 134%, but by a tax standpoint any investor who bought last year and eyeing the exits needs them to keep climbing.

 

Selling stocks you’ve held for less than a year activates a short-term capital gain, taxed as ordinary income. That could mean returning anywhere from 25% to 39.6% to Uncle Sam. But hold the very same stocks for at least 12 months and the tax rate drops to 15% for most tax brackets.

 

9) Know What You Need, and What You’re Paying For

 

The evolving brokerage sector is a beehive of competition to offer the latest and greatest trading options, but for many investors the basic essentials can be found anywhere.

 

Make sure you understand the kind of purchase or sell order you’re entering. A market arrangement, for example, will be executed whenever possible, whatever the prevailing market price; a limit order by comparison is only going to finish the transaction within cost parameters you have established.

 

10) Take Economy ‘News’ With a Pinch of Salt

 

The first trading day of 2016 hadn’t shortage of headlines, in the plummeting Chinese stock exchange to GM’s investment in Uber rival Lyft and the severing of connections between Saudi Arabia and Iran. But is that any reason for U.S. stocks to plunge more than 2.5% (as they did before bouncing off their lows)?

 

As an investor, the information flow driving day-to-day gyrations on the market ought to be taken as interesting reading as opposed to a reason to make or alter strategy.

 

This post was sent to us by Nicole Richardson at Only Reviews