choosing stocks

[LindseyS]

For those of you who invest in the stock market, how do you figure out WHAT you want to invest in?  Although I have read several books on the topic it all still seems so confusing to me!

[MoonShadow]

Personally, if I'm buying stocks directly, I stick with companies that I know what they do.  Like Coca-Cola, Disney & Proctor & Gamble.  I also favor those companies because they have all been around longer than I have, all operate in mature and fairly stable markets, and all have a history of paying dividends.  I've owned Wal-Mart & McDonalds in the past as well, but do not presently.

But for the most part, I just buy index mutual funds.

[matchewed]

All the things?

You may be running into analysis paralysis here. I'd start with the basics, an asset allocation. Keep it as broad as you can at this point via a simple equity/bond split. The higher percentage of bonds usually means a smoother but lower return. A higher percentage of stocks means a rougher but higher return. I mention this because there is an aspect of psychology to investing where people may panic and sell when they shouldn't during the rough times.

After that you can start to delve into the information you've learned from your books. What funds reflect your risk tolerance? If you're US based I'd recommend the VTSMX (US Total Market) and if you want international exposure (for diversification if you see fit) use VGTSX (International Total Market). For bonds it will be a similar kind of concept but I'd just stick with VBMFX (Total US Bond).

Read http://jlcollinsnh.com/stock-series/ write up an investment policy statement.

[hodedofome]

For those of you who invest in the stock market, how do you figure out WHAT you want to invest in?  Although I have read several books on the topic it all still seems so confusing to me!

What books have you read?

[Chuck]

Some of this is repeating what was said above:

1. Understand the company that you want to buy. Understand its history, its brand, its products and its management. This is made much easier if you buy something "that you know". If you buy Apple products, why? What attracts you to them? Why do you drink Coke but not Pepsi?

2. Examine earnings and projected earnings. How much money does the company make. How much is domestic, how much is overseas? Is revenue increasing yoy? Is profit?

3. If value investing, pay attention to capital return. Does the company pay a dividend? Is it increasing that dividend? Is that sustainable? What about share repurchasing?

4. After researching all these factors, determine what price you are willing to pay for that performance. Then buy at that price (or wait until it falls lower if you want a bargain).

[beee]

Check index funds:
http://jlcollinsnh.com/stock-series/

[hiddenace]

The simplest option is a ratio of world equity ETF/mutual fund and a total bond ETF/mutual fund.

I'll use Vanguard ETFs for my examples:

VT for world equity (stocks)
BND total bond market

Aggressive: 80% VT 20% BND
Moderate: 60% VT 40% BND
Conservative 40% VT 60% BND
Capital Preservation: 20% VT 80% BND

The ratio you pick is dependant on your risk tolerance and your time to retirement. Lots of info at Boggleheads.

[Retire-Canada]

The simplest option is a ratio of world equity ETF/mutual fund and a total bond ETF/mutual fund.

I'll use Vanguard ETFs for my examples:

VT for world equity (stocks)
BND total bond market

Aggressive: 80% VT 20% BND
Moderate: 60% VT 40% BND
Conservative 40% VT 60% BND
Capital Preservation: 20% VT 80% BND

The ratio you pick is dependant on your risk tolerance and your time to retirement. Lots of info at Boggleheads.

Until you are confident of a better plan ^^^ this is a good place to start. You can always move your investments to a different asset allocation at a later date as you learn and develop a plan you feel is best suited to your needs.

[mrpercentage]

Well it's depends on how much work you are willing to put in to it and your risk tolerance. If you don't know much at all then I would start with an index.

I suspect you mean actually buying stocks.
In that case as a beginner I would stick with the good dividend paying stocks to start. It is really easy to get burned in equity growth stocks.

Say Proctor and gamble was yielding 3% and it missed an estimate and money managers dump the stock. Well the dividend stays the same and now it yields 4%. This would be attractive and you would buy then having faith that the Pampers and Old Spice company will pull through some how. That dividend will be attractive to other investors and so it should eventually gain equity as well. That is the basics of DGI dividend growth investing. Companies that pay a good dividend usually have a long history of strong earnings and a history of taking care of their share holders.

For basic analysis start with: One Up On Wallstreet. The focus of this book is active management but you want to focus on the analysis chapters. Get Rich Carefully by Cramer has a good chapter in it too.
I would also go to seeking alphas website and use the free version. Read about Dividend Growth investing. Don't act on anything you read just absorb the info.
When you think you have a clue start small and see how that works for you. The bulk of your investing to begin should be index until you have a good idea what you are doing.

There is no way around it, you will have to spend a good amount of time educating yourself and follow the market to take advantage of the deals. Collect quality companies with a dividend when they are on sale. Hopefully this answers your question.

Try this site http://joshuakennon.com
He is the author of one of the investoring for dummies books.
Good luck and don't rush into anything

Also the DGI of seeking alpha was recommended because they will point you to the stalwarts and those are the companies you should be dealing with as a beginner

[money_maniac]

For my non-taxable accounts, I am almost 100% indexed.

For my taxable account, I am 70% index and 30% equities. When I pick equities, my general philosophy is to get blue chip companies that I know and believe in that have been beaten down recently for whatever reason. The street is super emotional and this can lead to buying opportunities in my eyes. I got in on target after their credit card mishap, jetblue after their pilots unionized, cvs when they stopped selling tobacco, etc. I've had a few duds in the short term (Exxon) but I'm in it for the long haul.

[mrpercentage]

Timing in entry is everything for short term but I think XOM will be a life long winner for you Maniac. I think it's important to point out that even great investments will appear to do poorly especially if you are only focused on the short term equity value. I stepped into Apple at the wrong time but have no fear and am not selling. I'm sure it's going to $150 eventually even if it takes a couple of years.

[hiddenace]

Why not just index and have a guarantee of the next Apple?

You don't have to read financial reports, you don't have to worry about the market being 'wrong' on your pick, you don't have to worry about nasty surprises (accounting errors, an oil spill - ask any pre-2010 BP shareholder), and you get to own the next big thing because you own the market.

The OP is asking for some entry-level advice and I'm hard pressed to suggest anything other than an index. Infact, she could simplify it further and pick a target date retirement fund and then she won't even need to know what her optimal allocation should be.

[mrpercentage]

Why not just index and have a guarantee of the next Apple?

You don't have to read financial reports, you don't have to worry about the market being 'wrong' on your pick, you don't have to worry about nasty surprises (accounting errors, an oil spill - ask any pre-2010 BP shareholder), and you get to own the next big thing because you own the market.

The OP is asking for some entry-level advice and I'm hard pressed to suggest anything other than an index. Infact, she could simplify it further and pick a target date retirement fund and then she won't even need to know what her optimal allocation should be.

I could have read that wrong. More proof that we see what we want to see. I am a dirty market timer and believe I can "beat" the market. If she is entirely green and looking for retirement I recommend an index as well certainly.

Also would like to mention that Apple is an equity growth stock. It is the exact type I warned her about. I think it will payoff but I don't think a stock that swings from 132 down to 95 back to 112 in a relatively short time frame is the stock to test your stomach with. I love Apple, I own Apple, but Im throwing it out there.