Yeah, I can spot a good stock... I just need a couple decades worth of hindsight. For example, if it were 1980, I would advise you to invest in Microsoft.
When it comes to 2010, however, I have pretty much no idea what to look for in an investment, so I was excited to find a
list of tips from DailyFinance's financial columnist, Peter Cohan.
So, what makes a good stock?
- The CEO and other execs store much of their net worth in public shares of the business. You want to know that the powers that be are as invested in the company's success as you are.
- The company's industry is growing. Now might not be the best time to invest in VHS tapes. Pick a market that will be around—and expanding—in the coming years.
- The company rules its industry. Rooting for the underdog is nice and all, but DailyFinance recommends putting your money into a company dominating its field.
- The stock exceeds expectations. If the company in question is consistently surpassing experts' predictions, you know something is going right.
Cohan, the columnist, came up with this list in part by comparing AIG (which sucks) to Amazon (which managed to continue growing through the end of the decade).
For example, tip #1 is pretty much the definition of not-AIG. When Obama's Pay Czar Kenneth Feinberg pushed company execs to accept payments in company stock, said fat cats were not very happy, essentially because the company stocks weren't worth anything. Not exactly a vote of confidence.
How do you choose investments? Do you agree with this advice?
Image Source
Comments (2)
emerging markets is where it's at. my portfolio's 20% up in the past 6 months.
The majority of these "financial" columnists are a day late and a dollar short when it comes to investment advice. Listen to the ones who warned of problems and high risks in the market in 2007 and 2008 - they are very few in number.
Cohen comparing AIG to Amazon is a classic example of weak advice and hind sight trading.
Sure AIG is in the dumpster "now" and AMZN is riding high "now", but if you invested in AMZN in 1999, you would have just broken even last year - that's TEN years to just break even! Cohen conveniently passes by the dot com crash where AMZN fell over 90% in value. Yeah,...what a great investment that was during that time (sarcastic tone).
Conversely, AIG was moving up then. While it was no barn burner through the last few years, it was stable and paid out a consistent dividend until it got killed in 2008 in the market meltdown.
Cohen making investment advice based on how the stocks are doing NOW is a bunch of garbage.
Not only that, but by the time one waits for all 4 "signs of a good stock", you can be sure that the stock will already be quite high in value and the danger then is buying at or near the top.
My advice would be to do one's own research and not take the advice of armchair quarter backs like Cohen who like to pick winners AFTER the results are in much later.
I'm sure Cohen is now ready to make bold summaries about the 2008 elections as well with an article on how to win.