3 Winning Tips for Choosing a Stock
Picking stocks is not easy. Thousands, if not millions of people are researching various stocks to buy and sell as we speak, and many of them are going to wind up losing money. In order to make money, you have to outsmart some pretty smart people, and that isn’t easy. However, I think that there are things that you can do in order to give yourself an edge in the process. These tips won’t guarantee success, but they will give you an advantage, and perhaps more importantly they will instill a winning mindset that mentally prepares you to make the difficult trades and investments that can make you money.
1. Be a contrarian
This isn’t necessarily a hard and fast rule, but you generally should be a contrarian. Look at what other investors and analysts are saying about the stocks that you like or own. If they all like it and have price target well above the current market price then chances are that they own it, and there are fewer potential buyers of your stock. It also means that the bullish case is already priced in.
As an investor, your job isn’t just to isolate bullish scenarios, but to isolate companies with bullish scenarios that aren’t yet priced in. For instance, take a look at Netflix (NASDAQ:NFLX). I don’t think anybody doubts the company’s ability to execute and the fact that it is in a secular bull market. But this has led investors to bid up the shares to unreasonable levels, and it follows that Netflix is probably a poor investment at current levels. Now when the stock was trading in the double digits and investors were coming out and doubting the company’s ability to execute, there was a buying opportunity, but it is too late, at least for now.