Five Simple Rules to Evolve Past the Hot-Stock List

By: Andrey Dashkov | Tue, Jul 1, 2014
Print Email

If you're a typical small-time investor, chances are you prefer to let a team of analysts fuss about such irksome things as correlation and beta. Maybe you've bought a stock because your brother-in-law gave you a hot tip, maybe you heard something about it on a financial news show, or maybe you just loved the company's product.

Friends often ask me for "hot stock tips"-which is like walking up to someone at the craps table and asking what number to bet on. An accomplished craps player will have position limits, stop losses, income targets, and an overall strategy that does not hinge on one roll of the dice. You need an overall strategy long before you put money down.

So, what do I tell those friends asking for hot stock tips? Well, that they can retire rich with a 50-20-30 portfolio:

Unless you're starting entirely from scratch, you should review your current portfolio allocations, identify where you're over- or underallocated, and then look for investments to fill those holes. In our portfolio here at Miller's Money Forever, we separate our recommendations into Stocks, High Yield, and Stable Income to help you do just that.


The Art of the Pick

By the time an investment lands in our portfolio, we've already run it through our Five-Point Balancing Test. When your boasting brother-in-law tempts you with a "can't-miss opportunity" or some pundit touts a hot tech company on television, you can come back to these five points, again and again.

  1. Is it a solid company or investment vehicle? Investing your retirement money safely is a must. How do you know if a company is solid? Take the time to validate essential company information, particularly when the recommendation comes from a source with questionable motivation.

  2. Does it provide good income? A good stock combines a robust dividend and appreciation potential.

  3. Is there a good chance for appreciation? There are two types of appreciating stocks: those that rise because of general market conditions and those that rise further because of the way management runs the business. We want both.

  4. Does it protect against inflation? High inflation is one of the biggest enemies of a retirement portfolio.

  5. Is it easily reversible? Ask yourself, "Can I quickly and easily reverse this investment if something unexpected occurs?" The ability to liquidate inexpensively is critical to correcting errors.


Marking the Bull's-Eye So You Can Hit It

It's worthwhile to write down your goal-including an income target and the price at which you'll sell if things head south-with every investment. After all, if you can't see the bull's-eye, how will you know if you've hit it?

Buying any investment because a trusted advisor, newsletter, or pundit recommended it is not a good enough reason. Buying because your portfolio has a hole, you understand the company, the investment vehicle, the risks, and the potential is.

Remember, retiring rich means having enough money to enjoy your lifestyle without money worries. Do your homework on every investment and you'll make that pleasant thought your life's reality.

 


Miller's Money Weekly Sign up here to receive it every Thursday.

The article 5 Simple Rules to Evolve Past the Hot-Stock List was originally published at millersmoney.com

 


 

Andrey Dashkov

Author: Andrey Dashkov

Andrey Dashkov
Research Analyst
Casey Research, LLC.

Andrey Dashkov

Andrey Dashkov, a native Russian, studies international finance and banking at Belarus State Economics University. In 2007, he met Louis James who was impressed with his enthusiasm and diligent research skills. Since then, Andrey has been researching global inflation, base metal and stock data, as well as company news for Casey Research. Thanks to his language skills, Andrey is an invaluable member of the team when it comes to looking into data from Russia, one of the world's major resource explorers.

Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained herein is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed herein are those of the publisher and are subject to change without notice. The information herein may become outdated and there is no obligation to update any such information. Doug Casey, entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications. Corporate policies are in effect that attempt to avoid potential conflicts of interest, and resolve conflicts of interest that do arise in a timely fashion. No portion of this web site may be extracted or reproduced without permission of the publisher.

Copyright © 2010-2012 Casey Research, LLC.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/