Lately I've been investing in individual stocks a bit more than usual. I'm pretty picky about the stocks that I buy. I was talking to a friend the other night about how I pick them and thought I'd post my approach here. When buying an individual stock, I only invest in two types of companies:
- Companies that make products or services that I use and that I love. This includes stocks like Amazon, Tumi and FedEx.
- Companies that are in the industry that I work in, that I know a lot about and that I believe in. Currently, this would be a company like Athena Health.
The only way to gain an advantage in the stock market is to bet against conventional thinking -- and be right. By investing in companies that I personally know and love or know and understand significantly more than the average investor, I'm at least putting myself in a position to gain an advantage.
Disclaimer: while I would certainly advocate that others use my approach to investing, I of course wouldn't advocate that anyone invest too much of their worth in individual stocks (it's too risky, regardless of your approach). Best to put most of your wealth in less risky, diversified investments with a modest but reliable return.