The only reason to invest in individual stocks is to beat the average, which I’ll define as the S&P 500 index. Otherwise, the index can be bought without having to expend a single ounce of thought and effort. Anybody reading this post is most likely interested in beating the average, and, as I wrote about in a previous post, the benefit of even a small increase in the average percentage return makes a big difference when compounded over many years. The obvious question is how to pick stocks that will beat the average. This post is the first in a series focused on analyzing growth stocks with the goal of selecting investments that will outperform the market.
WHAT’S REQUIRED TO ANALYZE STOCKS AND PICK THOSE THAT MAY BEAT THE MARKET
Someone doesn’t need to be a super genius or have an MBA or a CPA to analyze companies and develop a process for picking winners. Possessing advanced mathematics knowledge, such as calculus, is also unimportant. The two most important things that a person needs are a strong interest in investing and the willingness to put in the effort. If you’re someone who’s passionate about the stock market and enjoys thinking about and examining businesses then you’ll likely get pleasure from the process of analyzing and picking stocks. And if you’re successful, then I can assure you that you’ll likely get pleasure from any excess returns that you earn for your efforts! On the other hand, if all this sounds like a lot of work and a big chore, then it’s likely that all the other things in life will take precedent, and you’ll probably never find the time to stick with it. I think this last point keeps many people, who have the capacity, from becoming successful investors. Many others have bought into the myth that almost no one can beat the market average. Successful investors don’t just analyze, buy, and then forget about the companies they bought; investing is an ongoing and continuous endeavor. Thus, it requires ongoing effort. If the effort feels like a chore then it won’t be fun and the work probably won’t get done. For me personally, I’d estimate that the absolute minimum time effort that I need to put in is about 40 hours per quarter.
HOW TO PICK STOCKS TO BEAT THE MARKET
That’s the focus of this series of posts. Investing requires a process and that process begins with finding the stocks to analyze. There are many kinds of companies, but I’ll be focusing on publicly traded growth companies. Many growth companies don’t survive, so we’ll want to avoid investing those in favor of companies that we think will thrive; the companies that have their businesses thrive will almost always see their stock prices appreciate as a reflection of their success. My next post will be about how we can find the “right” companies to analyze. Finding them is essential but then analysis will be required before we make the decision to buy them or not.
A final note: I’ll be writing about how I choose my investments. There are many ways to choose investments, and I don’t want to imply that my method is the only and/or even the best way. I’m only sharing what’s worked well for me.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.