Tscm_1I almost forgot! The latest "Apprenticed Investor" column is up, and its titled Six Keys to Stock Selection.

By now, you’ve had it with all the theory. I know what you really want: some advice on how to select stocks. So that’s our goal today. We start with a simple checklist:

1. How’s the Chart?

2. How’s the Sector?

3. What’s Your Thesis?

4. Stop-Loss

5. Risk-Reward

6. News and Earnings

I have several future columns queued up that focus on helping you develop a methodology for own stock selection — a full set of tools to see if a stock is worthy of your attention.

Prior Apprenticed Investor columns can be found here.

Category: Investing, Technical Analysis, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “Apprenticed Investor: Six Keys to Stock Selection”

  1. royce says:

    Some questions: shouldn’t the checklist also ask “what’s your time frame?” After all, there are stocks you might be looking at expecting some kind of short term movement up, and others which are going to be good long term investments with much more short-term risk or volatility. It would seem the decision whether to sell at any given time would be highly dependent on this factor.

    Second, what about “Is the stock cheap relative to its expected future earnings?”

    Third, in an age of ETFs, “is the probability high that the stock will outperform the average of all other stocks in the same sector or capitalization?”

  2. G Eddy says:

    Irrespective of the six entirely valid items above, we still receive a lot of ideas and opinions (as distinct from, and in addition to, hard data) from many sources, and I often give some sources credence.

    I’m wondering whether the current sharply divisive political climate influences some of these opinions, however, and whether we should be much more skeptical.

    I’m inclined to totally ignore Kudlow’s loud, boringly consistent support of the administration, for instance, and I wonder whether the repeatedly upbeat stance of IBD is really justified. Does IBD interpret data a little differently regarding what constitutes a distribution day in order to present a more positive picture of the Bush economy? I hope they are entirely data driven in their interpretations, but I’m not convinced they are unbiased.

    It goes without saying that this phenomenon works both ways.

  3. G Eddy says:

    Irrespective of the six entirely valid items above, we still receive a lot of ideas and opinions (as distinct from, and in addition to, hard data) from many sources, and I often give some sources credence.

    I’m wondering whether the current sharply divisive political climate influences some of these opinions, however, and whether we should be much more skeptical.

    I’m inclined to totally ignore some loud, boringly consistent supporters of the administration, for instance, and I wonder whether the repeatedly upbeat stance of some publications is really justified. Do news staffers interpret data a little differently regarding what constitutes a distribution day for instance in order to present a more positive picture of the economy? I hope they are entirely data driven in their interpretations, but I’m not convinced they are unbiased.

    It goes without saying that this phenomenon works both ways.

  4. “what’s your time frame?” is actually discussed in the column under stop losses

  5. nate says:

    maybe “intuition”

    what do you think about king pharmaceuticals? for real or ready to crash?

  6. Larry Nusbaum, Scottsdale says:

    According to Benjamin F. King in his “The Latent Statistical Structure of Securities Price Changes,” 50% of a stock’s price movement can be attributed to the overall movement in the market, 30% to the movement in its sector and only 20% on its own. So, if you must pick individual stocks, use fundamental analysis for stock selection and technical analysis for the timing of purchasing or selling. Do not ignore market risk, however.

  7. Larry Nusbaum, Scottsdale says:

    Avoid Catastrophic Losses by:

    When the Stock decline breaks below it’s 50 day or 70 day moving average
    When the stock declines 7-8%
    When the underlying fundamentals have deteriorated
    When the price to earnings ratio is well ahead of its peers
    Do not look at the price you paid when it is time to sell
    Consider selling after a gain of 20-25%

  8. Steven Bruce says:

    Had a disturbing call from a client last nite. He’s a partner in a commercial real estate firm in San Diego. He had to ask for part of an investment back after being with us for years. Seems that outside of a listing in Honolulu that’s working to close he’s had only one major closing in the first qrtr and has one large deal that got stuck as rates started rising in April and hasn’t closed. As you are probably aware most large deals are Fed district cost plus. He says that San Diego has had the lights turned out over nite. Just dead. BTW, he’s been a size player in that mkt for over 25 years. SB

  9. Larry Nusbaum, Scottsdale says:

    Steve: Conduit lenders are at 115 to 125 bp over the 10 year treasury, fixed for 10 with a 30 year am.