February 23, 2003

Picking Stocks for the “Average” Person
By Marcel Chartier

I wanted to put have a short article on picking stocks for the “average” person simply because many folks who are trying to invest on their own don’t have an investment strategy. Many people’s portfolios are a motley collection of best picks or hot stocks that are individually chosen. I have heard of portfolios that are all tech, all precious metals, or small venture stocks.

Why? I don’t know, well then again maybe I do. People pick stocks based on the projected returns and not the potential downfalls.

I think as a small investor there are only two ways to go, either you are a trader, and pick volatile stocks to trade and stick to that strategy, or, you buy big international companies that are strongly positioned and will have good predictable growth. But most importantly, know what type of investor you are and act appropriately. There is nothing sadder than someone who has bought a collection of small venture stocks for the long term (you don’t buy small venture stocks for the long term). That is playing the lottery instead of investing. People can do well with venture stocks, but the probability is that you won’t. With the larger companies, with dividend earnings or solid records of growth you won’t be making lottery killings but you will be protecting your downside. And, if you are like me, you don’t always have the cash to take advantage of stock lows, as life takes a toll on available cash. I would rather be able to dollar cost average when I have the cash to invest, which is sometimes infrequently, and the larger companies allow me to do that. Larger companies are “liquid”, as thousands if not millions of shares are bought and sold each day. Try selling a smaller venture stock when it is are not in favour, the price spread between the asking price and the bid price can be very large, and you can lose large amounts quickly.

So, what do you do as a retail investor? I say pick large, international stocks that are regionally and geographically diversified. Pick stocks that you know will more than likely be around in the next 20, 30, 50 years. Pick stocks of companies that you would never want to compete against. If you were a software company do you want to compete with Microsoft? Want to compete against Walmart? You get the picture.

Some of these companies don’t promise the huge rewards that small cap venture companies do. That’s fine, because you probably can’t follow stocks extremely closely everyday. More information is known about larger companies You will hear pertinent news about larger companies, you won’t always hear pertinent news about smaller, riskier companies - at least not in a timely manner. Save the riskier plays to the pros, they follow trading all day. They know more, much faster, than you ever can about companies in play.

Another “knowing where you are in the economic food chain” strategy.