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Wednesday, January 14, 2015

Picking the right stocks is important

Today I came across this study and it has some data that confirm what the stock market is for informed traders/investors and for most people who doesn't understand the market and run away from them.

Stock picking

The way I look at the market, is obvious that we must choose profitable companies to invest in.

This is not for all investors, but for me it is how it works. I don't want to own a company that doesn't make a profit at the end of the year.

The study I mentioned above analise the Russel 3000 between 1983 and 2006 shows that, in this period:

  • 2 out of 5 stocks were unprofitable investments;
  • 1 out of 5 stocks lost at least 75% of their value
  • 2 out of 3 stocks underperformed the Russell 3000
  • 1 out of 4 stocks were responsible for all of the market’s gains
This means we have to look at a portfolio and see if our stocks are profitable, with increasing earnings and with good margins. If we do this, I believe we can profit from the market, and grow our wealth in the future.

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