How to Pick Stocks - Brief Article

Kiplinger's Personal Finance Magazine, Oct, 1999 by Manuel Schiffres

Here's how four experienced experts invest--and how you can choose stocks just the way they do.

Welcome to the Church of Whatever Works Now. As a member, you worship at the altar of hot momentum stocks one day, bow to the new-lows list the next. You pray to the Goliaths, then to microscopic companies--Davids, you might call them. You adorn your portfolio with Microsoft and Yahoo! when they entice you, then betray them when Alcoa and International Paper beckon.

The problem with this particular religion is that whatever works now may not work to your advantage--in fact, it may leave you worse off in the end. Flit from one style of investing to another and pretty soon you forget why you bought the stock and therefore don't know whether to hold on or sell. Frequent trading can run up huge costs. Outside of a retirement account, capital-gains taxes must be paid on profits.

A better approach to stock picking is to get comfortable with a particular style of investing and stick with it. Be a momentum investor, or a contrarian, or a growth maven or a bargain hunter. But don't try to be all of them at one time, and don't go jumping from one style to another. Investing styles constantly go in and out of favor. And human nature being what it is, if you constantly alter your strategy, chances are high that you'll make your shifts at the most inopportune moments. Sticking with a particular style is also important because each investor's temperament is different. Some folks break into a sweat even thinking about buying stocks with astronomical price-earnings ratios. Others have no such qualms.

So put aside notions of what works now, and instead ask yourself what approach is most comfortable for you. On the pages that follow, we'll introduce you to four investment professionals, each of whom personifies a different method by sticking to what he or she does best. One buys growth stocks at almost any price, another seeks the same sorts of stocks but only at what he considers a reasonable price. A third pro admires beaten-down stocks, and the fourth one pursues a yield-oriented, total-return strategy.

We'll also show you how and why they pick the stocks they pick, and how you can invest the same way they do, using tools that are now widely available.