NEW YORK (TheStreet) -- There's an old saying: "Jack of all trades, master of none." This describes a person who's capable at several things but not great at any of them. While this quality may get you by at your place of employment, in the stock market it gets you broke pretty fast.
In part one of this series we discussed the importance of communication between companies and shareholders. I argued that it's the duty of every management team to portray an aura of honesty and integrity while also sending a clear and understandable message to help investors establish realistic expectations.
In part two, we dug a little deeper to help you understand who and what you are buying. At the same time, we agreed that investors have a responsibility to research disclosure documents so that she/he will know for themselves how well the company is doing. By and large, this is where so many investors consistently struggle.
>>JPMorgan Sees Shift in WalMart Strategy as Sales Stagnate
In this article, we're going to discuss not only the importance of research but why investors must limit their research to only a handful of companies. The premise of "buying low and selling high" is known. But investors dismiss the idea that we can't and shouldn't attempt to follow everything.
It's enough of a challenge for an investor to know everything that needs to be known about just one stock. But with close to 6,500 companies listed on the NYSE
and AMEX, there isn't enough time in one day to conduct the sort of research necessary to learn even a small amount about so many companies spanning various industries.
Besides, even if you happen to be one of the lucky few who can retain "important" data, the chances of you making good use of that data in key situations will be limited to what the market considers "important." This means beating the market will still be proven difficult regardless of how fundamentally based and well-researched you think you are.
To that end, it is better to know "everything" about only a handful of companies as opposed to casting your net so wide that you lose track of what really drives your investments. And by "everything" I mean having enough knowledge about that particular stock that goes above and beyond the company's fundamentals. It's the only way for investors to realize a great opportunity when it comes knocking.
Check Out Our Best Services for Investors
Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts