Choosing Which Stocks to Buy
Investing in stocks can be a great way to make money, grow your financial portfolio over time and prepare for retirement. But which stocks should you buy? Choosing the right stocks is a critical decision that requires careful consideration and diligent research. If you’re not a professional stock trader, who has time for all that?
Good news: our team of analysts and portfolio managers here at The Prudent Speculator has decades of experience following the stock market and weighing different investment opportunities. It can be difficult to decide which stocks are the best fit for your unique financial goals, and seeing as how there are more than 3,000 stocks available for purchase in the U.S. right now, the options can be overwhelming. We’ll guide you through some simple steps so you can make better stock purchasing decisions.
We’re here to guide you as you identify the sector/s you’d like to invest in, what stocks are available and whether it’s a good deal, as well as overall investing strategies.
Consider the Sector the Stock is in
When investing in stock, it helps to look at sectors—or the industry or category of a company—to get an idea of what may be a good investment. This is because different industries will have different levels of success throughout their lifespans.
For instance, Tech sector companies tend to experience higher highs and lower lows than Consumer Staples sector companies. Tech companies also tend to have more growth potential overall. And not all companies are created equal; what happens at the business level—the revenue streams, product development plans, leadership changes, etc.— can directly impact stock value. Therefore, Selection (one of our three investing principles) is important when it comes to stock investing.
Research what Stocks are Trending and Why
Recently, Tech companies have seen great success, and some would argue show few signs of a slow-down anytime soon. Industries like e-commerce, streaming services, video games, cybersecurity and cloud computing are doing particularly well due to increased demand from consumers, even as most have returned to their pre-COVID-19 activities.
Some specific examples of hot stocks right now include Apple (AAPL), Microsoft (MSFT) and Alphabet (GOOG/GOOGL). We think these high-fliers have upside potential and we presently have stakes in them in our broadly diversified portfolios.
Here at The Prudent Speculator, we invest primarily in Value stocks. Meaning, we like to purchase good businesses that go “on sale” (for a variety of reasons), and we expect their values to rise over time. While every stock is fighting for its position in our portfolios, many of our positions are long-held and have swelled in the fullness of time. We first recommended Apple, for example, in TPS edition #408 in October 2000 at a split-adjusted price of $0.40.
Diversify your Portfolio to Mitigate Risk
No matter which stocks you choose to invest in, it is important not to put all your eggs in one basket. Be sure to build Diversification into your stock portfolio—a concept that is also one of our investing principles—across different businesses, categories and sectors. The idea is that if one company or sector experiences a downturn, relatively better performance from the other stocks and sectors can cushion the blow. And remember that Patience (the third of our investing principles) is key; investing requires long-term commitment. We have long believed–and benefitted from–holding our stocks through the fullness of time.
Investing in stocks can be intimidating, but with a helpful library of resources, diligent research and patience, it can also be handsomely rewarding. Before making any decisions about which stocks might be best for you personally and financially, we always suggest doing your homework first. Read up on the trends, businesses and stories that interest you most; compare various stocks; look into company track records; check out their financial statements; analyze market events; develop an understanding of how risk and rewards interact; and finally determine how certain investments help you achieve your financial goals.
Or, of course, you could skip all the above (again, who has time for all that?) and trust The Prudent Speculator to help narrow down the universe and lend a guiding hand on your path to financial success.