This Day On The Street
Continue to site
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

Investing 101: Don't Pick Stocks, Pick Companies

NEW YORK ( TheStreet) -- Warren Buffett once said, "If a business does well, the stock eventually follows."

If you have been reading my articles over the years, you would know by now that I quote Buffett quite a bit. The reason is simple: It's hard to argue with his brand of logic. Being in opposition to "The Oracle" has made fools of many people while costing them quite a bit of money.

When I was asked to contribute to this "Investing 101" package, explaining some of the "do's and don'ts" to newbie investors, I jumped at the chance. After studying so many companies and digging through hoards of buried information, there's no question that (in my opinion) successful "stock picking" is a myth.

Investors, especially those who are new to the game, believe they can come into Wall Street's house, pick a few stocks and leave with the house's money. It doesn't work.

The way to beat the market is to pick great companies. It seems simple enough, right? But how is it that so many smart people lose their retirements every year doing exactly the opposite? You have to know how to spot a great company. It first requires two things: never taking anything for granted and constantly doing your homework.

Take, for instance, the dot-com era. While I'm not old enough to remember the Woodstock music festival of the 1960s, from stories I've heard I think of the dot-com era as the high-tech version of Woodstock -- plenty of great memories that you wished never happened. Likewise, investor due diligence and personal responsibility were non-existent during the dot-com era.

Contrary to Buffett's quote above, greedy investors bid up shares of any company with a ".com" attached to its name. This went on even though these companies literally had "no business being in business." Still, their stocks performed exceptionally well. Why? Investors -- if you can call them that -- were more than willing to mortgage their future on the likes of, and, betting they would grow into their valuation and make tons of money. Well, we know how that turned out.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.19 -1.04%
FB $118.06 0.54%
GOOG $695.70 0.48%
TSLA $222.56 -4.20%
YHOO $36.00 -0.03%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs