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How to Select a Stock to Keep?- Part 1 of 3

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ikea poster @ Alexandra I had great fun writing the blog post yesterday and finding quotations to encapsulate what investing is all about. Today, I'd look at the work flow when I consider a stock purchase. As this is a rather long process with a few things to consider, I thought that this post should be broken up to 3 parts so that they can be covered in sequence.

When I started buying stocks, it was more of a gut feel. You know, when you think to yourself, "Hey, maybe this stock will go up". I'd go and get it and it is because there is a large dose of luck involved that I managed to make any money at all. I'd go for the famous companies, the blue chip and the IPOs of large companies in stable industries like finance, transportation etc. On hindsight, it wasn't too bad a choice, luckily I didn't choose speculating in penny stocks for example.

After reading up and gathering more information to beef up my skimpy knowledge of investment from what I had learnt in school studying economics as my major and hearing what my Dad had to say about the subject (my studies was in large part because my Dad had invested in companies like BAT-British American Tobacco which gave out great dividends), I slowly developed the investing methodology that have worked for me so far.

Step 1

Acquire as much knowledge from different sources as possible to build up your confidence, ability and humility about the subject. Yes, humility is needed in investing. Often you hear brash and loud opinions to get this, sell that, short it there.

Humility is to know that you know next to nothing about investing even after you have read over 50 books plus numerous papers and articles on it. In the end, you'd probably find out that if you can be average in investing, just do simple things like buy index stocks with the bulk of your money, you'd end up in a better state than that brash and braggart of a financial advisor.

Through humility, you'd get the ability to make more right choices and slowly build the confidence to manage your investment portfolio which will be the ticket to your financial freedom.

Read William Bernstein's Four Pillars of Investing to get started on the journey to learn more about investment. It'd be worth every minute of your time. And go on to learn from different authors about the myriad ways to select and choose your investments.

Step 2

Read the papers, especially the companies and finance pages to get a feel of the companies in the stock market. Skip the predictions, read about what is happening in the various companies and the industries and from a variety of sources.

I find the local Central Library stocked with great financial newspapers like the Wall Street Journal. I also read the financial blogs that I subscribe to on Google Reader and Yahoo finance pages to see what are the latest news out there. If I have the time, I will read the Economist in the library and the Fortune magazine, scanning and skimming to pick out the articles about companies and the general economy.

Everything is free so far. I don't read  the Straits Times anymore. Couldn't stand their one sided perspective on local politics(is there any?). Except sometimes I buy the Business Times in the morning once in a long while when the book I am reading is really boring and tedious. Like most of my blog post :)

What can be taken away? You can gain leads to what to do, what to focus on and what investors like Warren Buffett is doing. I read the Fortune article about him buying BYD and after working out all the sums, I bought into the company too. At the moment, I have doubled on my initial sum. Not too shabby from spending around 30 minutes reading a dated copy of the Fortune magazine, although it is just paper profits at the moment.

However, you do not act on all the leads, some you file it away at the back of your mind so that when there are opportunities, like a drop in the prices of the stock, you can act on the lead as the stock has become attractive. At other times, after check through, you find it not what it was written out to be and you basically put that writer on your personal **** list.

I'd continue tomorrow to talk about how you look at the numbers in the annual report or figures that you are able to get hold of in part 2 of How to Select a Stock to Keep?

Other posts in this series:

1. How to Select a Stock to Keep? Part 2 of 3

2. How to Select a Stock to Keep? Part 3 of 3


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