Don't Let a Great Stock Pick Pass You By

At the end of each investing day, you can turn on any financial network and read a list of the biggest stock movers of the day. We often find the great stock pick at the end of the day rather than the beginning. If you're a day trader, it doesn't help to find out after the fact.

If you are a long term investor, a great stock pick is easier to find because time is on your side. You can watch for a trend in both the charts and the fundamentals that will allow you to make educated decisions about where you believe a stock is trending but how do we know a great stock pick when we see it?

The key is in the analysis. A combination of fundamental and technical analysis, combined with a little street smarts and luck will make you a whole lot of money if you're patient.

Look at the stock's balance sheet. If you are looking at a small company who is just getting their start, some debt should be expected but for those companies that are well established, one rule for the conservative investor is easy to follow: A company with a lot of debt isn't going to be a great stock pick.

Warren Buffett says to avoid leverage. Avoid it in your home finances and avoid it in your stock picks. Companies with large amounts of debt cannot grow. Debt causes a company to move backwards so before they move forward, they have to at least get back to zero.

Because large scale professional investors move a stock, and they know how to read a balance sheet, you can be sure that debt is priced in to a stock. By investing in a debt laden company, you are putting your hard earned dollars in to their debt.

A great stock pick will have a lot of cash. Cash equals opportunity and opportunity equals expansion. Just like you and I, if a company wants to expand, they have two choices: Pay in cash or go in to debt. A company with cash on hand starts to see the benefits of their expansion from the very beginning where a debt laden company has to pay back their debt before they see the benefits.

What does that mean to you? Replace "company" with "I" and you'll know. If a company has cash on hand "I" will reap the benefits of the expansion right away.

Are you tired of watching others make money in the stock market while your portfolio remains lukewarm? Click here to find out how to put your portfolio in to high gear and make big money.

Finding a Great Stock Pick in Four Steps

Everybody's looking for it. Like the gold rush from long ago, the modern day gold rush just might be the great stock pick that will allow you to quit your job, send your child to college, or simply take the vacation that you have always dreamed about. Is it possible to find it or is it something that only the professionals are able to tackle? Let's take a look at four quick steps to take to find the next great stock pick.

A quick note: Although these steps work well for all investors, day traders and other very short term investors will not use the same four steps.

First, look at your portfolio and decide which sector that stock will come from. Remember that diversification is the key so having stocks from different areas of the economy is the key to success. Total the amount of cash you have in your portfolio and then figure out how much of that money is in each sector. You should try to keep it relatively balanced. If you have 5 stocks, 20% of your money should be in each sector.

Second, find the best of breed stock in that sector. In the retail sector, it might be Walmart. In technology, Apple, and in financials, JP Morgan. By the time you read this article, these may not be best of breed. I only use these as examples but if you are even the most part time student of the market, you probably have a good idea. If not, read the financial news websites or ask experts. If you have an online broker, use their research tools.

Third, take a look at their chart. If they are at the top of their 52 week high, they probably aren't the best choice for a long term hold. A great stock pick will have plenty of upside when you buy it. Along with this, you want to look at the P/E Ratio. If their P/E is lower than companies that do similar things, that is a good choice.

Fourth, look at the balance sheet. Lots of cash and very little debt is what you want. Leverage (debt) is the enemy to growth. If their balance sheet looks like a balance sheet you would be proud to have for your home finances along meeting the other three criteria above, you probably have a great stock pick staring you in the face.

Are you tired of watching others make money in the stock market while your portfolio remains lukewarm? Click here to find out how to put your portfolio in to high gear and make big money.

Four Enemies to a Great Stock Pick

There are more than 3000 stocks in existence just here in America. Count every stock in existence and finding a great stock pick for your portfolio becomes a difficult task. There are many people who will tell you what a great stock pick is but very few tell you what they aren't. We're going to look at the four enemies to great stock picks.

The first and biggest enemy to a great stock pick is leverage. Leverage is Wall Street's term for debt. Warren Buffett says to avoid leverage. Avoid it in your home finances and avoid it in your stock picks. Companies with large amounts of debt will always be bogged down with mediocrity. Debt causes a company to move backwards so before they move forward, they have to at least get back to zero.

The only exception to this rule is a small startup company that has to finance their startup and R&D costs. This, still, is very risky. A small company in debt is still not a good company but we are willing to overlook the problem if we see promise. Be very careful and know that you can lose a lot of money by taking a chance like this.

The second enemy is their sector. A good company that is part of a sector that the investing community doesn't like is nothing more than the best of the worst. An airline stock that has had a good quarter is still in a sector that isn't favored so their upside is quite limited until the investing community finds confidence in it again.

The third enemy to a great stock pick is an abnormally high dividend. This is often too good to be true and many questions need to be asked before putting your money to work based on the dividend. Abnormally high dividends will often get cut.

The forth and final enemy is yourself. Your emotions, your feelings, and your preconceived ideas. Too often, we make decisions about our investments that have no basis in the data that is sitting on our computer screen. A trusted expert said it was a buy but we don't see it in their balance sheet. A friend told us that he has made a lot of money so we pull the trigger for that reason only. Stay as unbiased as you can to find the next great stock pick.

Are you tired of watching others make money in the stock market while your portfolio remains lukewarm? Click here to find out how to put your portfolio in to high gear and make big money.

How to Buy Stocks via Paypal

I have noticed a LOT of people online desperately searching for a way to invest online using PayPal. Many people don't have checking accounts, for various reasons, or perhaps they are overseas and would like to invest in US companies, using money they've earned on PayPal.

It is not expressly advertised that this can be done. PayPal seems to tend to want to be recognized more as an online shopping tool than anything else. But it CAN be used to purchase stocks, and I'll tell you how!

The only site I'm positive this works with is E*Trade. I can't say for sure about any others, because etrade is the only one I have done it with.

Its a pretty simple process, actually. Go to www.etrade.com and sign up for a brokerage account. It does not require (at least at the time of this writing) any sort of initial deposit. After you've done that, make a note of your securities account number, and head on over to PayPal.

You'll want to add a bank account to your PayPal profile. You are now going to add your Etrade brokerage account as a checking account.

For the ABA number (also known as the routing number) use: 056073573
For the name of the bank, use: Etrade Clearing LLC
For the checking account number, use your Etrade brokerage account number, and for account type be sure to select checking.

To verify that this is Etrade's correct ABA (routing) number, look up how to do a wire transfer on Etrade, and the ABA number they give should match the one I gave you above. If it does NOT match (it may change in the future), then replace the ABA number I gave you in the instructions with the one that is listed on Etrade's website for wire transfers.

PayPal will go through the normal process of making two small deposits into your Etrade account in a few days that you will need to verify, and voila, your PayPal account is linked to your Etrade. You can then use the funds to invest in whatever you'd like. You can also apply for an Etrade debit card.

Hopefully this system will still be functional in the future, but if you ever plan to buy stocks with PayPal, I suggest you do it now just in case!

As far as which stocks to buy...well...do your research! There are several resources available online to help you figure out what type of investments would be best for you.

Buy American. I Am. By WARREN E. BUFFETT

October 17, 2008
Op-Ed Contributor
Buy American. I Am.
By WARREN E. BUFFETT
Omaha

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This dXXXXXn leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.