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How to pick a stock

During the last few months many friends have been asking me what stock they should be buying. Apart from the big companies (blue chips) there are of course many other attractive stocks and assets that one can buy that will outperform the classic investments.

The most important this you should as is what kind of investor you want to be:

Are you an active investor, willing to search for information, with a cold head and willing to research and read as much as necessary? If so, you should focus more on pharmaceutical stocks, with great return on investment for the ones willing to read. Many will say it is risky, truth to be told is that the same people that tell you so are the ones not willing to read and research. Other people will say that you have to be a medical doctor to understand what the drugs are about, but the internet has enough about information to understand the trials and phases of any drug. Gains with pharmaceuticals could go up a year if you pick the right one.

Are you an investor willing to stay for long with some risk? Then you should search for new technologies, markets and products before their stock price is way too big. I would recommend diversifying in a way that even if 70% of the stocks go down to zero you will gain with the other 30% enough. How is this possible? The year: 2010. Imagine you invest 8.000 dollars divided in Facebook, Tesla, Solyndra, Wework, Juicero, Moviepass, Theranos and Workhorse (if you only know are Facebook and Tesla in this list, this kind of investment is not for you). You will have failed with 5 of them, but you would be up 10.000% with Tesla, almost 1000% with Facebook and 300% with Workhorse. If you invested 1.000$ in each, you would have now 113.000$ even failing 70% of the time. 

Are you an investor willing to see some money each year in your account without selling? You should focus on dividend stocks. The best are not always the ones with the biggest dividends, this may be the result of a bad performing stock in the last year and the risk of the dividend being cutted or canceled. You should rather focus on dividend growth, dividends that year after year keep rising a little as the stock continues rising. How is this? Apple used to give a 2% dividend years ago. Because they don't have dividend growth their dividend nowadays is 0.66%. Other companies such as Coca-Cola keep their dividends growing, meaning that their 3.5% dividend is always there, growing with the stock. You will be thinking: If I buy at 100$ a stock and they give me a 2%, even if the stock rises to 400$ and the dividend is only 0.5% I still get 2% of my 100$ stock. True. But if their dividend grows to always give you 2%, when your 100$ stock gets to 400$ you are no longer getting 2%, you are getting 8%. 

Are you an investor that fears investing? Then maybe the ETF products and government bonds are the best for you. These are products that will outperform any bank “saving account” and the risk is very low. You won't see the money for sometime but you won't suffer if the market is up or down.

There are two things that you should remember at all time when investing:

Everything is not already invented: Tesla, Spotify, Uber, Airbnb were not around 15 years ago.

Nothing is too big not to fall: Nokia, Enron, Exxon, Lehman Brothers, Wirecard, Motorola… all went down within a few years.


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