How to Pick Stocks: Important Things To Know And Warren Buffet’s Tips

How to Pick Stocks

Wondering “How to Know What Stocks to Buy?” then you have landed on the right place.

So “What to Look for When Buying Stock?

Trading in stocks and selecting the right stocks for your portfolio depends on a multitude of factors. Some of those factors are your experience level, available capital and the style of trading you prefer. Whether you are looking for the best stock for day trading or you are looking for the best options for swing trading, position trading or investing, it’s very important to have a well thought out criteria for selecting your stock. Ofcourse, your investment and trading plans are always dynamic, evolving as you go, but you should never invest a penny until you have a strong idea of how to do it.

Here are some things to help you learn how to pick stocks:

Gauge your risk appetite and choose accordingly

No matter your personality type, develop a strategy for choosing stocks to invest in

Start by picking one stock then analyze the results. Use trading charts to know movement of stocks and therefore the overall market. How much risk you are willing to take is very important. If you are averse to risk, then losses will put you off trading very quickly. If you are too adventurous and have no risk aversion, you might make foolhardy investment choices and lose all your money.

Keep your personality in mind while choosing stocks

Also, your personality type will play a huge role in helping you manage the sorts of stock you trade. Whatever decision you create, think long, deep and hard. You need to understand that stocks have different levels of volatility and velocity of price movement. Use great and easy to use tools to get a better idea of the stocks you are picking.

Manage risks efficiently when it comes to picking stocks

Determine what degree of risk you’ll accept and afford. Try and create a stock picking strategy that’s centred around capital preservation and risk control. Preserving capital is critical as without money, you can’t really invest in anything, no matter how good your strategy is.

When it comes to the stock market, you have a lot of different types of stocks to trade, each with different levels of volatility, price, and volume characteristics. You should start out by minimizing risk. As your skills, experience and any successes increase, you can consider expanding risk associated with the stocks you pick to trade.

One of the biggest mistakes made by a lot of new traders is “just getting started” and “learning on the go”. While there is a lot of trading knowledge that can only come with experience, starting with no or very limited knowledge is extremely dangerous for your money. You need to analyze and calculate, making informed and educated trading decisions. Just like starting or growing a business, planning and calculation are important.

Try and keep it simple

Whatever stock picking strategy you opt over the future, start out by trading only one stock. Watch, study and learn that one stock. Each stock has its own personality and characteristics. You need to know these “habits” to anticipate the perfect moves to form . Study the charts at numerous time frames – intraday, daily and weekly. As time passes, start adding stocks one by one. While trading one stock, don’t forget to study the behaviour of other stocks. You can learn a lot from that. Once you’ve moved further along the “learning curve,” begin to trade one among the other stocks you’ve been studying. You will already have an understanding of its behavior since you’ve been observing it closely. Try to stick with stocks that line up with your trading plans and have a lot of consistency.

How does Warren Buffet Pick his stocks?

Buffett’s Methodology

Warren Buffett is an expert in finding low priced value in the stock market. He does that by asking himself questions about the stock’s performance and excellence when compared to its price. Here’s a list of things he does. We won’t discuss them in detail and we will cover it some other day.

  • Company Performance
  • Company Debt 
  • Profit Margins
  • Commodity Reliance
  • Is the stock Cheap?

Warren Buffet’s Best Quotes on How To Pick Stocks and Investment in General

  • “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 2.”
  • Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
  • “Widespread fear is your friend as an investor because it serves up bargain purchases.”
  • “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
  • “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
  • “The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”

Warren Buffet quotes on long term investment

  • “Someone’s sitting in the shade today because someone planted a tree a long time ago”
  • “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
  • “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
  • “An investor should act as though he had a lifetime decision card with just twenty punches on it.”
  • “Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Those who seek short-term profits should look elsewhere.”
  • “Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”
  • “All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.”
  • “Do not take yearly results too seriously. Instead, focus on four or five-year averages.”
  • “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
  • “It is a terrible mistake for investors with long-term horizons — among them pension funds, college endowments, and savings-minded individuals — to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks,”

Warren Buffett’s quotes on picking stocks

  • “If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.”
  • Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts, or the opinions of media pundits.
  • Buy into a company because you want to own it, not because you want the stock to go up.
  • “Never invest in a business you cannot understand.”
  • “Risk comes from not knowing what you’re doing.”
  • “If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on.”
  • “Buy companies with strong histories of profitability and with a dominant business franchise.”
  • “We want products where people feel like kissing you instead of slapping you.”
  • “It’s better to have a partial interest in the Hope diamond than to own all of a rhinestone.”
  • “In the business world, the rearview mirror is always clearer than the windshield.”
  • “One thing that could help would be to write down the reason you are buying a stock before your purchase. Write down “I am buying Microsoft at $300 billion because…” Force yourself to write this down. It clarifies your mind and discipline.”

Warren Buffett quotes on ignoring market noise

  • “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.”
  • “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
  • “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
  • “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
  • “Don’t get caught up with what other people are doing. Being a contrarian isn’t the key but being a crowd follower isn’t either. You need to detach yourself emotionally.”
  • “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Warren Buffett quotes on knowing your strengths and weaknesses

  • “There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.”
  • “You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
  • “We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.
  • “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”

Warren Buffett quotes on debt

  • “If you’re smart, you’re going to make a lot of money without borrowing.”
  • “If you buy things you do not need, soon you will have to sell things you need.”
  • “You can’t borrow money at 18 or 20 percent and come out ahead.”

Warren Buffet quotes on cryptocurrency

  • “Bitcoin has no unique value at all,”
  • “You’re just hoping the next guy pays more. And you only feel you’ll find the next guy to pay more if he thinks he’s going to find someone that’s going to pay more. You aren’t investing when you do that, you’re speculating.”
  • “Stay away from it. It’s a mirage, basically…The idea that it has some huge intrinsic value is a joke in my view.”

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