What Is a Stock Pick?

Using a systematic form of analysis to conclude that a specific stock will make a good investment is called a Stock Pick.

It is both the tool and the result i.e. you use a stock pick system to get a stock pick (if that makes sense). You can use different tools to find that stock pick but first what do you do without one.

Picking stocks

Without a systematic approach commonly finding stocks to trade will involve:
1. (Lots of) Research and
2. Curbing your enthusiasm.

So you hear of a stock. Now onto understanding the financial health of the company by reading reports. How does that sector look like as a whole? How does that company compare with it’s competitors?

Then deciding if what you hear about a stock is even true? Being emotional or excitable about news articles or hearsay can tend to lead to rushing into buying a stock or panic-selling. This is often when mistakes are made about investment decisions.

Finding a stock that ticks both boxes can take time.

Picking individual stocks or diversifying?

Predicting which stocks will increase in value in the future is difficult so picking a single individual stock is like picking a single number on the roulette table and hoping it lands, the odds are more against you.

You may win big if you get it right, but your chances of winning something could increase by backing several numbers. For this reason, many investors prefer to diversify their portfolio​. A handful of consistent picks with a chance of winning small is sometimes better than waiting for the big one to land.

Things to consider before you start picking stocks

First things first what kind of trader are you? Have you decided? Buy and hold long term or do you want the excitement, risk and reward from intra(day) trading? Or maybe something a little in between like swing trading where you buy and sell over a longer time frame.

The best way to decide is:

1. Decide your trading goals and timeframe

An investment timeframe will directly impact your approach to choosing which stocks to trade.

How long do you want to stay in the trade? If you want to trade over the short-term you will need to find stocks that you think will increase in value quickly and allow you to cash out for profit. If you want to do this consistently you’ll need a stock pick strategy which generates frequent opportunities to trade.
Meanwhile, a medium-term or long-term time horizon could be taken with stocks you are content to hold on to, such as high-paying dividend stocks, for example. You’ll need a stock picking strategy which alerts you when to buy that specific stock.

2. Decide how much you want to risk

There are no guarantees when investing or trading. Therefore, decide carefully how much capital you are prepared to risk. Managing your risk profile is central to establishing an effective stock picking strategy.

The proportion of the wealth you are investing in should also match your strategy. Put simply if you know you’ll be trading multiple stocks then you need to spread your capital across multiple assets.