This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Apprenticed Investor: Six Keys to Stock Selection

So far, Apprenticed Investor has dealt with a lot of theory. We've discussed how emotions lead to bad decision making, and why you should stick to your plan. But I know what you really want: some advice on how to select stocks. That's our goal today.

The idea is not to pick stocks for you, but to help you develop a methodology for selecting stocks -- a set of tools, a checklist of sorts, to help determine whether a given stock is worthy of your attention.

One caveat: We are not addressing whether you should be a buyer of stocks today. Our discussion assumes your asset allocation is appropriate, and that the market is not in a high-risk, low-return territory. I'll address each of those concerns in a future column.

So without further ado, here's our favorite prepurchase checklist.

How's the Chart?

Charts are a great time saver, and for that reason it's where we begin. You don't have to be a technician to uncover potential problem stocks quickly and eliminate them from contention.

Glimpsing at a chart provides three ways to erase a stock from your list: One, if it's been in a long downtrend, avoid it all costs; two, if it's been flatlining for years; and, three, if it's too volatile for your risk tolerance.

Note, however, that eliminating a given stock doesn't mean forgetting about it. Take, for example, the stock in a downtrend. Since we don't know when the institutional money (i.e., mutual funds) will be done selling, it's simply wiser to wait for them to finish distributing. You can use a 10-day moving average to let you know when the downtrend may be ending.

The same thinking applies to a flat-liner. Instead of guessing what's going to make it finally break out, apply the same moving average to let yourself know when the stock is finally moving.

Meanwhile, stick to charts that don't have problems. (For more detail on how to use technical analysis, check out "Tracking Elephants," parts one and two .)

How's the Sector?

Here's something few people are aware of: Academic studies show the sector a stock is in is actually more important to its performance than the company itself.

1 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs