How to Pick Stocks

Any thoughts / opinions / ideas / advice on how to pick stocks? I subscribe fully to the Efficient Market Hypothesis, which says it should be very difficult to beat the market. But I am also realizing fees would actually lower buying an individual stock every month rather than an index fund.

I'm ok with increased risk -- and actually like that idea when it means the value (and expected value) is higher. I just have no idea what makes something a good bet. In the casino it's a mathematical formula. In the stock market it seems to be information -- and there's so much bullshit that the more I research, the more my head spins.

Research candle stick charting and play the percentages from the setups based on historical data.

Quote: TomG

Any thoughts / opinions / ideas / advice on how to pick stocks?

What's your goal?

Quote: ECoaster

What's your goal?

Process oriented goal would be to make good bets based on available information.

Results oriented goals would be to make money and beat the market.

I have a tiny little fund that I started an experiment with, like a couple hundred bucks.

I randomly pick a stock. The only filters I use are to select a stock with a generally high market cap. I hold it until it makes money, checking every day, then immediately sell and repeat the process. Haven't sold anything for a while because the market has been stagnant, but I'm up almost 10% for the year.

Other than that I'm a buy-and-hold index fund guy.

Honestly I'd just invest in cryptocurrency if your goal is to make money in a long term basis (and not day-trading). I know it's not a stocks thing and likely not what you were asking about, so I'll leave it at that.

Quote: RS

Honestly I'd just invest in cryptocurrency if your goal is to make money in a long term basis (and not day-trading). I know it's not a stocks thing and likely not what you were asking about, so I'll leave it at that.

My hesitation is that even crypotcurrency should also fall under Efficient Market Hypothesis. Any reason why it wouldn't? Even if I just equal the market, I'll be fine with stocks long term. What is the theory for why cryptocurrency would make the strongest investment? Is there any data that goes back further than 5 - 10 years?

Quote: TigerWu

I have a tiny little fund that I started an experiment with, like a couple hundred bucks.

I randomly pick a stock. The only filters I use are to select a stock with a generally high market cap. I hold it until it makes money, checking every day, then immediately sell and repeat the process. Haven't sold anything for a while because the market has been stagnant, but I'm up almost 10% for the year.

Other than that I'm a buy-and-hold index fund guy.

Do you just use a random stock generator?

I have to believe with research, understanding, and rational decision making, we could give ourselves a chance at finding something better. Also looking to do quite a bit more than a one time shot with a few hundred

I've done the index fund thing off-and-on for about 15 years now. Given enough time, individual stocks should end up slightly better than index funds (because of the lower fees). But we would also have the chance to possibly hit Apple at their pre-iPhone prices. But how can anyone one know which company is going to hit the next homerun? Casinos is just a math formula?

Quote: TomG

there's so much bullshit that the more I research, the more my head spins.

the problem is known as "the signal/noise ratio". With stuff you just come across randomly, it's mostly noise.

gold is looking mildly attractive these days. I wouldn't want to oversell it, but it might be time to consider a position

as for stocks, be sure you diversify, and I wouldn't be buying at all these days unless you are taking a very long position

I agree that markets are efficient. In a sense your question is, how can I beat a team of guys who went to MIT at a game that they play professionally and in which I dabble?

Well, as always, you'd need to find an identifiable edge. For guys like us, in this game, it would have to kind of fall in your lap.

I was in college on 9/11. I put the $1000 or whatever I had in yahoo after the tank. I just didn't see how a terrorist attack should make tech stocks dramatically less valuable. So markets perhaps can have irrational panics. And maybe also on a particular company rather than the whole market.

One thing I read in a book by Peter Lynch was that you might stumble onto a product you just love. There are other people who are wired like you and the market might not get how perfect this thing is for TomGs and the nuances of what makes it so appealing or effective.

Of course, we've all seen products we loved fail. I really wanted to invest in the parent company of Fresh & Easy, but luckily I was already broke.

Quote: TomG

My hesitation is that even crypotcurrency should also fall under Efficient Market Hypothesis. Any reason why it wouldn't? Even if I just equal the market, I'll be fine with stocks long term. What is the theory for why cryptocurrency would make the strongest investment? Is there any data that goes back further than 5 - 10 years?

I'm not sure about the EMH thing. I'm not really a stock investor and all that stuff. I looked it up on wikipedia though. I'd say that right now, cryptocurrency is still a very new thing. Volatility is huge, plenty of market manipulation, and overall uncertainty (FUD) from less knowledgeable investors, IMO. It sure doesn't help that it's pretty difficult to get in to, right now. Beating the cryptocurrency market is going to be tough to do.

These things aren't necessarily bad, but make investing in it a lot more stressful. I saw my portfolio drop about 50% in just a few days (not fun), but it also went up about 400% over the course of 4-5 weeks. When prices start to go up, a bunch of people tag along for the ride. When they start to go down, people get scared and sell. So the ups and downs get severely inflated of how they should be, again, IMO.


I don't know if cryptocurrency would be the "strongest" investment, since different people have different goals. But there is definitely a huge upside in crypto, as there are tons of people working in that field coming up with new ideas. I don't think you're going to be able to "beat the market" in crypto with technical analysis. Institutional money is coming into cryptocurrency. I mean, the CBOE has filed with the SEC to get a BTC ETF (damn, lotsa fancy letters). Even if they don't approve it this time, eventually it's going to get approved.

Quote: TomG

Do you just use a random stock generator?

I go to an online stock screener, screen by how much I have to spend at the time, let's say about $38-$40, sort by market cap, and just buy one of the ones near the top of the list.

Quote: TomG

But how can anyone one know which company is going to hit the next homerun?

You can't.

Quote: TomG

Any thoughts / opinions / ideas / advice on how to pick stocks? I subscribe fully to the Efficient Market Hypothesis, which says it should be very difficult to beat the market. But I am also realizing fees would actually lower buying an individual stock every month rather than an index fund.

I'm ok with increased risk -- and actually like that idea when it means the value (and expected value) is higher. I just have no idea what makes something a good bet. In the casino it's a mathematical formula. In the stock market it seems to be information -- and there's so much bullshit that the more I research, the more my head spins.

There are just too many different strategies that investors utilize to give a simple answer. The market is complex and each individual has two Define his or her goals. If you are saying you want to beat the market you are essentially saying you want to do better than the S&P.

Finding undervalued companies is not as difficult as it sounds once you understand EBITDA, pe ratio, current and historical sector trading multiples, technical analysis, charts, Etc. We are in a secular bull market and I believe the market will continue to do well through the new year.

Options strategies are the best bang for my buck. Hedging is important when utilizing options. Covered calls are a great way to earn income as you take in premiums from time value then biy the underlying stock. Many times you can profit on both sides of this trade.

As far as cryptocurrencies go.. It is the future and Bitcoin or etherium will go up in value over time. Just buy it and put it in your drawer and forget about it.

I don't actively trade, I'm a long term buy and hold mutual fund guy.
but I'm tempted to trade binary options on Nadex, a respected exchange.
this is basically pure gambling, not investing
you bet on whether the issue is above or below a certain point at certain time which I think can be as short as 10 minutes.
I think there are other types of bets you can make too.
I would bet on something where the long term trend is the same as the short term trend which is the same as the overall market trend.

I would bet on days where there is a significant overnight might move in the futures market betting with that trend so that there are 4 trends in the same direction:
1. the individual issue's short term trend
2. the individual issue's long term trend
3. the overall market's short term trend when it matches the long term trend
4. a significant overnight move in the futures market which is in the direction of the short and long term overall market's trend

not saying I would win. just saying that's what I'm tempted to do.
probably won't do it because I'm not hungry anymore.

Marijuana stocks in Canada. Things are getting pretty interesting.

Personally big fan of index funds thru vanguard

Highly recommend “couch potato” approach. Look it up.

With 4-6 diversified funds. Rebalances allocations once a year. Very low cost expenses/fees.

Solid returns with less volatility.

Good luck.

Quote: linksjunkie

Marijuana stocks in Canada. Things are getting pretty interesting.

Personally big fan of index funds thru vanguard

Highly recommend “couch potato” approach. Look it up.

With 4-6 diversified funds. Rebalances allocations once a year. Very low cost expenses/fees.

Solid returns with less volatility.

Good luck.

Agree with the Canadian marijuana stock sector as being the potential for the next explosive Market. Now is a great time to buy in as all stocks are trading lower for multiple reasons, however the end of summer will commence sales generation. The best approach to this sector again is to just buy and hold. Put it in your drawer and forget about it and you will have a nice surprise in couple of years. CGC, APH, ACBFF. Are a few of the ones I like.

Quote: linksjunkie

Marijuana stocks in Canada. Things are getting pretty interesting.

That's should be a really good place to look. I was looking at American pharmaceuticals that are getting into THC, but Trump is not friendly to the healthcare sector. Canada would be a better market

Quote: WatchMeWin

Agree with the Canadian marijuana stock sector as being the potential for the next explosive Market. Now is a great time to buy in as all stocks are trading lower for multiple reasons, however the end of summer will commence sales generation. The best approach to this sector again is to just buy and hold. Put it in your drawer and forget about it and you will have a nice surprise in couple of years. CGC, APH, ACBFF. Are a few of the ones I like.

I'll third that. It's been kind of slow/down lately but there are some good bargains right now and it should start climbing late in the summer/early fall as recreational sales gets closer, (October 17th).

Medical cannabis has been legal in Canada for more than 15 years so they have become a world leader in the product. Besides suppliers there are a number of other companies working on pharmaceutical, edible, and similar products that are worth looking at as well. One of my favorites are Canadian companies that cross the US border as well. They should be well positioned when cannabis becomes legal in the US, which is just a matter of time.

If you are looking for higher than normal returns and are willing to take on a little more risk I'd suggest looking at any of the emerging industries, one of which is cannabis. Chinese stocks have recently had some phenomenal gains with companies that are similar to US companies such as Amazon or Facebook. The Chinese economy seems to be waning so I'm on hold for now but I'm watching. One thing that scares me about China with stocks such as YUMC is that if there was a major spat with the US it could be devastating on the stock, and there have been incidents that have occurred in the past that show it's a valid concern, so be careful.

As for how to do your due diligence start with the companies that look promising and read their press releases. Yes, to some degree it's fluff, but it will give you a better idea of what they are trying to do and if they are having any success which may give you an inking on if they truly have a shot at succeeding. Then research the upper management. Do they have a proven track record? Have they started multiple companies with few or none that have been a success? (You see quite a few of these in the cannabis stocks). Is there a lot of cash going into the pockets of those at the top while the share price keeps getting lower and lower? Check insider trading, (which would be www.sedar.com for Canadian companies), and see if they are buying or selling their own stock. If they are buying then they probably believe in what they are doing. If not...

I find forums such as Stockhouse and Yahoo to be valuable as well, although you need to take a lot of what's said with a grain of salt. But along with the chaff you can also find occasional pearls of wisdom that can help guide your search. You can also find things like links to articles that you might not see otherwise that can help you understand the company better.

And of course the last thing is to cross your fingers, because you just never know what might happen.

Diversify. Buy sectors, and buy three or more companies within each sector.

Concentrate on earnings growth and cash flow.

Listen to your Presidents. In one way or another, they tell you what to bet on.

QE, which began with GW Bush and continued under Obama meant easy money for the banks. It was time to buy the financials, like JPM, GS, C. $650 million in profits due to QE. What’s in your wallet?

Obamacare meant more people with medical insurance, and that meant more business for Pharma. Buy pharma.

Trump campaigned on infrastructure, coal, steel, and defense spending.

After the election, it was time to buy Catarpillar (+27%), defense contractors like NOC (+21% past 12 months), and LMT (+10%). Then railroads to transport all that stuff. CSX (+18%), GATX (+22%), past 12 months.

Look at the FAANG’s.

Past 12 months:

AMZN +82%
GOOG +26%
FB +31%
AAPL +28%

Keep up on the global news. IMF and FT are important sources. Watch the value of the dollar. Price of Copper. There's a reason they call it 'Dr. Copper'

Quote: Hullabaloo

If you are looking for higher than normal returns and are willing to take on a little more risk I'd suggest looking at any of the emerging industries, one of which is cannabis. Chinese stocks have recently had some phenomenal gains with companies that are similar to US companies such as Amazon or Facebook. The Chinese economy seems to be waning so I'm on hold for now but I'm watching. One thing that scares me about China with stocks such as YUMC is that if there was a major spat with the US it could be devastating on the stock, and there have been incidents that have occurred in the past that show it's a valid concern, so be careful.

China stocks have been doing quite well especially with the Chinese companies listing in the US market with recent IPOs. I've done very well with BABA, MOMO, IQ. Today was a very interesting tell for me... and I am selling out of my Chinese stocks for the time being due to the fact that I believe China will come out with some news any day which will not be favorable for US and China relations. I am hopeful that things will get resolved , but after watching CNBC this morning and listening to Larry Kudlow, I think we are in for some difficult times with China. He mentioned that China has made absolutely no progress in trying to work with us on IP theft and tariffs. Very concerning. Chinese are very sneaky. I know.. My girlfriend is Chinese.. LOL but on the serious note, I would be cautious. There are plenty of other sectors and stocks to make money with. FB has been great for options Trading for me.

I invest 80% in core solid growth companies... and 20% in more speculative plays and options trading . My core Holdings in which I just sit back and let the money do the work for me are FB, AMZN, MSFT, WDAY, NVDA, AAPL, EXAS, CRM, WFC, GOOG, WTW.

Just investing in these core Holdings and sitting back letting them do the work for you beat the market... and the best part is I never go to sleep worrying because I believe in these companies , their management, and their growth story. Understanding the world we live in today and how technology is utilized has proven to be successful.

Additionally, Wall Street and corporations have become so Savvy over the years and they understand how to manage their balance sheet and post solid earnings and forecasts.