Daily Gains Letter

Tune out the Noise: Three Ways to Improve Your Stock Picking

By for Daily Gains Letter |

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Lots of people own stocks. Lots of people like to trade the stock market, invest in the stock market, and short the stock market. Like everything else, being a good stock-picker takes practice.

So here are three techniques to practice to improve your stock-picking skills.

1. Tune out the Noise

I’ve learned to turn off the stock market as much as possible. It’s not that I don’t want to be informed about what’s happening to investor sentiment, the trading action, news, and trading volume; it’s just that all the noise takes away my attention from finding great companies.

For example, I don’t watch CNBC. There are lots of great hosts, stories, and interviews, but I find that it sensationalizes the daily economic news, just like most media. It’s more useful to spend the time screening for new stocks than watching TV. Their views on investor sentiment or the trading action are much less valuable than your own.

 

2. Listen to Corporations

The only thing that matters when it comes to investing in the stock market is what corporations say about their businesses. And you have to be bold. You have to go against investor sentiment, or the prevailing news in the media, and believe what a company is saying about its business conditions. It is true that some companies are better at predicting their business conditions than others. And some corporations have more integrity than others, wanting to sway investor sentiment, rather than tell the truth. But all you have to do is just go back and read through a company’s financial results and listen to its earnings conference calls, and it’s pretty easy to discover honesty in business conditions. How a CEO answers questions from investors and analysts is very telling. It is the best news on investor sentiment you can hear.

 

3. Do Your Own Research

The best way to come up with new stock picks is to run your own daily screens, make lists of stocks that look interesting, and then investigate further. And with your own screening, you can find all kinds of opportunities that you never hear about on TV or through other outlets. Try running a screen on stocks making new 52-week lows worth over $3.0 billion. The buy-low/sell-high investment strategy works, but you have to troll for opportunities. The opposite is true for attractive momentum plays. And it always pays to review quarterly earnings results. All kinds of free media allow you to find out which companies surprised to the upside. Then you have a whole new list of companies to investigate further.

 

Investor sentiment is very important in the stock market, but prevailing investor sentiment is not reliable. Nobody knows how the stock market will unfold over the coming quarters, so it’s what corporations have to say that is worth the most.

Good stock market investing takes legwork. Investor sentiment is something that carries the share price on a near-term basis, but fundamentals do win out in the end. Stock picking is business. Turn off all the noise, and concentrate on the numbers. It’s just that simple.

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