How to Become a Better Stock Picker

By Spencer Jakab 

Investors can often do more harm than good to their portfolios by chasing after initial public offerings (IPOs), reaching for yield and not understanding what they are buying. In the article, Avoiding the Mistakes Made by Ineffective Investors, Spencer Jakab presents his “Seven Habits of Highly Ineffective Investors” and although there are undoubtably many more mistakes investors can make, these are the specific pitfalls you’re most likely to encounter.

Some topics that Jakab covers include:

• Whether you can combine morals and investing
• How volatility and risk influence your investment decisions
• The price of quick gains

As one AAII member worded perfectly in the article’s discussion:

“There is an expensive way to learn and a cheap way to learn: The expensive way is to learn from your mistakes … the cheap way is to learn from the mistakes of others.” 

By Michael C. Thomsett 

Fundamental analysis is a sensible, valuable and sound system for comparing companies and narrowing down the list of strong candidates. But the problem for every investor remains: Out of the range of possible indicators, which fundamental tests should you use? In Four Fundamental Tests Every Stock Investor Should Use, a Top 40 article from the AAII Journal archives, Michael Thomsett covers four of his favorite indicators that he feels are key to stock analysis and can help you evaluate a company relative to both its past and its peers.

Thomsett uses these factors because they work together to avoid a common problem: focusing on one or two important tests while deeper and perhaps growing problems go unnoticed.

The fundamental variables Thomsett uses include: 

• Revenue and earnings
• Price-earnings (P/E) ratio
• Dividends per share
• Debt trends

No matter what indicators you use for your fundamental analysis, Thomsett stresses the need to study multiple indicators, along with the trend in those indicators.

If you are looking for ways to maximize your fundamental analysis, the article Four Fundamental Tests Every Stock Investor Should Use is a good place to start.