Ten Golden Rules For Picking The Best Stocks To Buy by Lukas Neely, Endlessrise Investor
Are you fed up with trying to find the best stocks to buy?
How much time are you wasting trying to find the next great investment opportunity?
We’ve got a secret for you….
Don’t do it by yourself. It’s too hard!
With over 50,000 publicly traded companies in the world, trying to pick the best stocks to buy on your own is a sure way to frustration at best — Or even worse, you make the worst trading mistake ever….trading your precious time for money.
This is lost time and money that you’ll never get back, if you don’t know how to properly search for the best stocks.
If you’ve invested in the stock market before, you know how difficult it can be to find the best stocks to buy. However, this process must be done. Great investment returns won’t grow themselves. They need a solid foundation with which to blossom and grow.
A simple process that finds the best stocks to buy is the lifeblood of every great investor. The following rules are a simple process to help you find great investment opportunities fast.
Here Are The 10 Golden Rules For Finding The Best Stocks To Buy:
1) Have A System Or Process Of Investment (and try to follow it).
“By failing to prepare, you are preparing to fail.”
Whether you are a long-term investor like Warren Buffett or Seth Klarman, or even a shorter-term trader like Paul Tudor Jones, it’s vital that you establish a philosophy that’s similar to your personality and risk tolerance.
Here’s a simple question to ask yourself:
Do you have the temperament to see your investment decline by 50% without selling your position?
If yes, then value investing may suit you well. If no, then you may enjoy the philosophies or strategies of more active traders.
This simple question will help you determine which side of the line you stand.
Focus on establishing a rational, repeatable, proven investment process from a Super Investor you admire, and don’t deviate from it too much (unless you develop your own philosophy).
Remember: All these stock ideas from Super Investors won’t mean anything if you don’t understand their investment philosophy.
Study up on the Super Investors. Read about them and their past investments and decisions. And choose a Super Investor philosophy that suits you best.
I believe every investor should have a mentor. Pick one (or many), just make sure to stay within the boundaries of their proven philosophy.
2) Use Super Investors As A Starting Point To Determine Investment Opportunities.
“If I have seen a little further it is by standing on the shoulders of Giants.”
Let’s not kid ourselves here…technology is great. It’s paved the way for some incredible discoveries, and it helps to improve the quality of life to billions of people everyday.
However, when it comes to being distracted with tons of big data it can be a burden at times for an investor. The data set that’s available today is too large.
The Super Investor process bypasses all the noise. It allows you to focus on a select few companies, and pinpoint the areas that matter most to investment success.
This is a Secret of the investing world that many investors are not using enough.
Hidden beneath the mountainous documents and data of SEC filings, lies a treasure chest of incredible opportunities. You just have to dig them up, and find them through all the 13Fs, 13Ds, 13Gs and proxy statements.
If you are going to invest in stocks, it makes perfect sense to start with investments that have already been vetted by the world’s greatest investment minds and analyst teams. This is a “no-brainer”, however investors constantly want to make it difficult on themselves because we live in a world where simple is looked upon as lazy. Some call it lazy…I call it smart.
Using the Super Investors investment ideas allows you to follow a simple process that consistently finds you the best stocks to buy.
Start viewing “simple” as a job well done. You will have more time and energy, and your investing will take a giant leap forward.
This strategy doesn’t mean you disregard all logic, and stop the research process. Listen to Super Investors that you respect or share similar philosophies. It doesn’t mean you blindly accept them at face value and invest in their ideas no matter what. That would be incredibly irresponsible. You still need to finish the remainder of the golden rules to help decrease your risk.
It is important to note that investment funds generally report their end-of-quarter holdings with a 45 day delay. That’s why it is imperative that you align yourself with focused, long-term Super Investors that use very low turnover in their portfolio. And you want to pay particular attention to the top 10 positions. A Super Investors best ideas will be over-weighted in the 10 positions. This strategy will increase the likely-hood that the investment ideas are the best stocks to buy.
As you can see, this simple process allows an investor to narrow a universe of 50,000 stocks — into a couple hundred businesses that an investor can know very well.
How’s that for an investing hack?
At Endless Rise Investor, we follow a list of 30 value investors that fit our long-term philosophy. We couldn’t have asked for better analysts.
You can view our list of Super Investors on our homepage: http://EndlessRiseInvestor.com
(finding just 3-5 great investment opportunities every year through this process, gives an investor a superior advantage versus the rest of the market.)
3) Explain Why You Are Buying The Stock In One Paragraph.
“Acknowledging what you don’t know is the dawning of wisdom.”
If you can’t explain why you are buying the stock in one paragraph — Then Don’t Buy The Stock.
Throw it in the garbage bin, and move onto the next idea or opportunity. It’s not worth your time, and could cause psychological and emotional mistakes down the road if you don’t have the necessary conviction in your investment.
When you identify a potential opportunity, run it through your checklists and mental models to see if it passes some basic tests. After this quick analysis, you want to write down a few lines on why you want to buy the stock. In this paragraph, we want to focus on the big picture reasons for investment. Jot down potential sustainable competitive advantages of the business and a rough estimate of intrinsic value.
Remember to keep this analysis somewhere safe. You will want to review it periodically (every 6 months or so). Make adjustments or modifications to your analysis with new information that is coming in after the 6 month period. This will help you determine whether the business is on the right track or potentially deteriorating (at which point a decision may need to be made).
It is very important to stay within the confines of your circle of confidence. If you know the industry dynamics of railroads better than the technology space, then focus on railroads. It’s perfectly normal for you not to know everything about everything all the time.
Maybe you may understand the fundamentals of a particular business industry better than most. Or maybe you may have expert knowledge of a certain business model. Or maybe you don’t really want to know too much about the business, you just look for business that are trading at incredible discounts to liquidation value or intrinsic value. Whatever you do well, keep doing it.
A great deal