Improving my Stock Picking Skills

October 16, 2008

I have worked on my stock picking skills. Now, I am not an investment advisor, but I find the method so straightforward and compelling that I want to share it with you. Moreover, it’s free. There is no seminar to pay for, no classes to attend, no long books to read… What I write below and a free account on http://www.predictwallstreet.com is all you need to improve your stock picking skills as well.

I use two simple guidelines:

1. I only trade securities for which I have a four- or five-star rating
2. NEVER, ever do I trade securities for which I have a one- or two-star rating

Here is how it works:

1. I only trade securities for which I have a 4- or 5-star rating

After opening an account on www.predictwallstreet.com, I start predicting on some companies I like. A prediction is always made for the end of the next market day. This means that at the end of the next market day, I know whether or not my stock pick and direction was correct. I track my performance on the My Page.

After predicting a few times on the same stocks, I notice that I have stocks for which my predictions are mostly correct and others that are consistently incorrect. This means I have a different level of affinity for different stocks. PredictWallStreet expresses this affinity in terms of star ratings, which is a measure of accuracy and number of predictions. A four- or five-star rating indicates that my predictions are correct most of the time. It means that I am usually able to correctly forecast a stock price’s reaction to buzz, news such as earnings, or any macroeconomic events.

Hence, by investing only in stocks for which I have either a four-star—or better yet—a five-star rating, I can minimize stock- picking risks and improve the odds for a successful trade.

2. NEVER, ever do I trade securities for which I have a one- or two-star rating

Following the previous argument, logic dictates that investing in one- or two-star-rated stocks is a recipe for disaster. While it is tempting to try to be contrarian to oneself, I do not believe it is even remotely possible. And, yes, I tried it. It WAS a disaster.

Of course, this guideline does not mean that I should give up if I have a one- or two-star rating on a particular security. It only means that I should delay trading and just observe the security until I am able to better forecast its behavior.Of course, if this new knowledge leads to more accurate predictions, my star rating will increase and the first guideline will hold.

Therefore, in order to prevent loss, the most important guideline to follow is to refrain from trading on low-affinity stocks.

I hope this information is useful to you. Feel free to comment on this blog or to send me your feedback.