Go for what you know: the best stock picks are the ones you recognize.Getting a group of like-minded folks together to form an investment club is the easy part. Deciding what to invest in can be a brain drain brain drain n. The loss of skilled intellectual and technical labor through the movement of such labor to more favorable geographic, economic, or professional environments. , even though numerous guides, including one put out by the National Association of Investors Corps. (see "Meeting of the Minds," Moneywise, February 1997), can help you evaluate stocks. Knowing which companies to give the once-over is the next step. There are various styles and strategies for picking stocks. The first thing many industry gurus agree on is to consider companies you already know. Start by taking a look around you--say, your bathroom, kitchen cupboards, refrigerator and clothes rack. The products that fill your house, or even the corporations that provide services that you and your family couldn't do without, often yield investment ideas. After all, wouldn't it be nice to own a part of the companies that make the clothes you wear and the food you eat; Looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. household brand names can lead to market leaders whose earnings-per-share are growing. Among the most promising consumer-driven stock sectors are soft drinks, fast food, specialty retail (like fashion) and entertainment. Several financial top guns have made money the same way, simply by observing what's going on What's Going On is a record by American soul singer Marvin Gaye. Released on May 21, 1971 (see 1971 in music), What's Going On reflected the beginning of a new trend in soul music. around them and following trends. For example, Peter Lynch, former manager of the world's largest mutual fund, Fidelity Magellan, often bragged that he came across one of his best investments by noting how his wife liked the quality of L'eggs hosiery hosiery Knit or woven coverings for the feet and legs, worn inside shoes. In the 8th century BC, Hesiod referred to linings for shoes; the Romans wrapped their feet, ankles, and legs in long strips of leather or woven cloth. . Hot industry trends can be another source of stock picks. A word of caution, though. It may not be safe bet to follow the herd after the latest "craze" sector. Like health care or technology, unless a member of your club is familiar with the business. "If you are computer literate computer literacy n. The ability to operate a computer and to understand the language used in working with a specific system or systems. computer literate adj. , look at what new software is making your life easier, find out the manufacturer and if the company is publicly traded," says Pierre Dunagan, an investment officer at First Chicago, NBD NBD Next Business Day NBD National Bank of Dubai (United Arab Emirates) NBD No Big Deal NBD Network Block Device (Linux) NBD Nucleotide Binding Domain NBD New Business Development Investment Services Inc. Toys are another good bet. If your teary-eyed three-year-old is begging for an action figure, chances are, other parents will be shopping for the same product. "Take a trip to retail stores and check to see how many people are buying the product," advises Dunagan. "Stand in the isles for a little while and just observe. Talk to the store manager and ask how well a particular product is selling." The obvious downside Downside The dollar amount by which the market or a stock has the potential to fall. Notes: You might hear someone say that the downside on stock XYZ is $10. What that means is that the stock could fall by this amount if things got bad. to this type of homespun research is that you could come in late on the cycle, when the buying frenzy is ending. And, of course, you risk a glitch A temporary or random hardware malfunction. It is possible that a bug in a program may cause the hardware to appear as if it had a glitch in it and vice versa. At times it can be extremely difficult to determine whether a problem lies within the hardware or the software. See glitch attack. cropping up in the product, slowing sales down. Popularity alone doesn't make a company a good investment. Look for a good balance sheet, consistent sales and strong earnings growth. Ideally, you want to buy a company with a price-to-earnings ratio Noun 1. price-to-earnings ratio - (stock market) the price of a stock divided by its earnings P/E ratio securities market, stock exchange, stock market - an exchange where security trading is conducted by professional stockbrokers that is lower than its earnings-growth rate. You can find a company's P/E ratio P/E ratio Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings. by looking at the stock tables in the newspaper or online. Call the company's investors relations department and ask for an annual report and quarterly reports. If the company is large and has a broad product line, a new product may not significantly impact the bottom line, cautions Dunagan. But if the company is small, a new hot-selling product could boost earnings, he says. Don't be afraid to ask questions of the folks in investors relations. If the company is currency unprofitable, you're allowed to inquire in·quire also en·quire v. in·quired, in·quir·ing, in·quires v.intr. 1. To seek information by asking a question: inquired about prices. 2. when the company expects to turn a profit, how fast it projects sales will grow and its competition. Top Investment Club Picks The 10 most popular stocks held by NAIC members Ranking(*) Company Exchange: Symbol 1. Motorola Inc. NYSE: MOT 2. PepsiCo. Inc. NYSE: PEP 3. Merck & Co. NYSE: MRK 4. McDonald's Corp. NYSE: MCD 5. Intel Corp. NASDAQ: INTC 6. AFLAC Inc. NYSE: AFL 7. The Coca-Cola Co. NYSE: KO 8. Lucent Technologies NYSE: LU 9. RPM Inc. NASDAQ: RPOWG 10. AT&T Corp. NYSE: T |
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