How To Choose Stocks For Your Portfolio

Stock Picking And Portfolio Building

Investing in stocks can be a great way to grow your wealth over time. But how do you know which stocks to pick? How long do you hold? Did you pay too much? How do you build a portfolio that works? Am I a trader or an investor? There are lots of questions you need to answer before venturing into the world of portfolio construction and buying and selling stocks.

To make stock buying decisions that have a higher probability of working in your favor, then it is important to understand how liquidity cycles work and how to identify potential opportunities for growth in sectors with strong macro tailwinds.

Diversifying your financial portfolio to include speculative stocks with asymmetric upside potential and lower-risk dividend-producing stocks, which pay you to own them, are popular strategies that can help build up your portfolio with steady returns.

In this article, we will explore tips on how to construct a portfolio, choose the best stocks for your financial portfolio, and when to buy or sell a stock.

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Understanding How Liquidity Cycles Work Is Invaluable For Investors

Companies that offer low debt, solid cash flow, strong growth, and are in the right sectors, can be hard to come by If you don't know what you are looking for. These, however, are the kinds of stocks you want in your portfolio.

When external markets enjoy a surge of liquidity from various sources like government deficits and central banks - all investors worry about is how much they can make off their speculative investments. A stock's fundamentals become secondary concerns.

However, these same resources won't be forever flushed with easy money. As history has shown us, its cyclical nature will inevitably return one day – leaving those well-stocked internally liquid companies at an advantage for success!

Understanding how liquidity cycles work is critical when buying stocks and building a portfolio that makes you money during rough times.

Central Banks And Interest Rates Give Clues

Interest rates dictate the price of a currency. If interest rates are high, then borrowing slows down, which means less currency is loaned into existence. If interest rates are low, and borrowing is loose, then expect more currency loaned into existence, therefore, more currency spent in markets.

Crypto Is Liquidity Driven

Cryptos are speculative and highly volatile assets that appreciate during a time of high liquidity (when more cash is sloshing around in the economy). But when liquidity dries up, like it is now, then so does the price of Bitcoin. Investors move out of speculative assets and into more fundamentally sound value stocks or dividend-producing blue chips during bad times, which are often liquidity driven.

To catch the next Bitcoin run, wait for a dovish Federal Reserve to relax rates and encourage more growth or a CARES ACT 2.0.

How to pick stocks

How To Spot Potential Investments For Your Stock Portfolio

With the stock market on a seemingly crazy run, many people believe it's too late to invest. But, if you're into long-term investing, it's still a great time to build a portfolio starting today. As a beginner or seasoned investor, you may have heard the adage "time in the market beats timing the market," and this has been proven out with multiple studies.

For passive investors who want the bulk of your portfolio to be allocated to ETFs poised for growth. You won't have to worry too much about the market's daily swings. For a conservative, long-term investment portfolio that builds your wealth over time, yet still captures some upside, consider the following:

Cash - Allocate 10% of your portfolio to cash. This safe, liquid asset provides peace of mind and helps you limit investing to the money you've set aside for that purpose.

ETFs - Allocate 50% of your portfolio to ETFs. These are the foundation of your portfolio and will plug and chug at an average rate of return of around 8% a year in the long term.

Blue Chip Stocks - Allocate 25% of your portfolio to blue chip stocks. These super-large capitalization stocks are stable over a long period and should still be around in 20-40 years.

Speculation Stocks - Allocate 10% of your portfolio to growth stocks. These are expected to outperform the market but also have more downside during a market pullback.

Crypto - We do not invest in crypto so do not recommend it. If you want to add a small allocation of your portfolio to Bitcoin, then that is okay.

In summary, building a strong foundational portfolio for 2023 requires an aggressive approach in the right spots but is conservative with everything else. With this approach, you can preserve your capital while capturing the upside in the long run.

Finding Your Investing Edge With Macro

Macroeconomics examines the larger economic picture, such as overall interest rates and average productivity across nations. It is a crucial part of economics that considers overarching forces shaping our economy. Successful long-term investors understand macro, and you should too.

While this may sound daunting, learning macro doesn’t have to be! You can follow people like Chris MacIntosh, Brent Johnson, Lyn Alden, and George Gammon. Just seek them out on Twitter and youtube and start your education journey.

As Warren Buffett famously said: “Risk comes from not knowing what you’re doing.” This means that the key to success in the stock market is identifying enough fundamentally sound equities in sectors and subsectors that are dirt cheap to build a well-rounded and diversified portfolio.

gold nuggets

Find Gold Nuggets In Quarterly and Annual Reports

Investors should look closely at quarterly reports when researching stocks for their portfolios. It's not enough to simply settle on a Warren Buffett-style dividend portfolio.

Those stocks are NOT dirt cheap – you'll need to dig in and make sure that the companies you're interested in are performing well and are cheap by valuation standards.

A careful look at how a company performs from one quarter to the next can help investors make better decisions.

There's a great service called FastGraphs that can help you wrap your brain around fundamental analysis in a visual way. They also have a fantastic Youtube channel.

When looking at a company’s quarterly report, there are a few key numbers to consider.

First, how much income are they generating? This is important because it indicates how well their operations are doing – and how much money they have available for dividends or buybacks.

Next, how much of the company’s income comes from recurring sources such as subscription fees or royalties? Having a reliable stream of income can help investors to feel more confident in their holdings.

Finally, how did the company perform relative to expectations? If they beat estimates, that's a good sign – but if they miss, it might be a sign of trouble. Investors should be especially wary if there is a consistent pattern of missing estimates for multiple quarters in a row.

Is the company cheap? Valuing a company is essential in determining if it's worth investing in. It involves analyzing the financial statements and other information about the company to determine its intrinsic value.

By establishing the company’s current value, investors can decide whether it is undervalued (cheap) or overvalued (expensive).

Use Fastgraphs or download stock delver from Lyn Alden's website. It's an affordable ebook that will show you how to value companies across different sectors.

Before you invest in any stock, research its background and financials like you were about to buy and operate the business yourself. You want to make sure that it's worth investing in. Researching a stock is no different than researching any other business you'd buy.

Pro Tip #1: Take the time to read industry newsletters and other publications in the sectors you are researching. Make an effort to understand the sector you are investing in.

Pro Tip #2: Research can be a daunting task, especially if you are new. Suppose you have the funds to invest in a good service like Rebel Capitalist Pro or Capitalist Exploits Insider. In that case, you'll get macro education, guidance, and model stock portfolios constructed by professionals that you can pick stocks from.

Build A Stock Watch List And Review It Daily

Monitor stock trends by building a watchlist in your brokerage account or someplace like Keeping tabs on how a stock’s price has fluctuated over time is important to understanding market behavior and it will make you a better investor.

Technical Analysis Is A Great Way To Understand Price Action

Technical analysis is a trading strategy used to identify prime investment opportunities. By analyzing the ups and downs of price movements, as well as fluctuations in market trends and volume, savvy investors can stay one step ahead of their competition!

Pay attention to how quickly stocks on your watch list rise or fall in relation to other stocks in its sector and the market as a whole. This will help you determine how risky the stock is and how much you should invest into it.

Risk Management

Finally, know how to manage risk when investing in stocks. Diversifying your portfolio is a key factor in managing risk.

That means spreading your investments across multiple companies in multiple sectors and subsectors instead of putting all your eggs in one basket.

Additionally, understand how much risk you’re willing to take when investing in a particular stock and how long you’ll hold onto it. This will help ensure you don’t get burned if the market suddenly turns south.

The Importance of Diversifying Your Portfolio For Long-Term Success In The Stock Market

As an investor in the stock market, you are likely focused on growing your wealth over the long term. However, it is important to keep in mind that the stock market can be volatile, and investing in just a few stocks can be risky. This is where diversification comes in - spreading your investments across different stocks, industries, and sectors to reduce risk and increase your chances of success.
Here are some reasons why diversification is crucial for long-term success in the stock market:

Reduce Your Risk

Investing in only one or two stocks can be a risky move. If those stocks do not perform well, you could lose a significant portion of your investment. However, diversifying your portfolio can reduce your exposure to any particular stock or sector. This approach can help you minimize risk and protect your investments.

Increase Your Chances of Success

Diversification can also increase your chances of success in the stock market. By investing in a range of stocks and industries, you can benefit from the potential growth of different sectors. This approach can help you achieve a more consistent return on your investment over the long term.

Manage Your Emotions

Investing in the stock market can be an emotional experience. Market fluctuations can cause panic or anxiety, leading to knee-jerk reactions and poor decision-making. However, with a well-diversified portfolio, you are less likely to make rash decisions based on short-term market movements. This can help you stay focused on your long-term investment goals and avoid making decisions based on emotion.

Adapt to Changing Market Conditions

The stock market is constantly changing, and it is important to be prepared for these changes. By diversifying your portfolio, you can be better equipped to adapt to changing market conditions. For example, if a particular sector or industry is experiencing a downturn, you can reduce your exposure to that area and invest in other areas that may be performing well. This approach can help you maintain a well-balanced portfolio and avoid overexposure to any one particular area of the market.

In conclusion, diversifying your portfolio is crucial for long-term success in the stock market. By spreading your investments across various stocks, industries, and sectors, you can reduce risk, increase your chances of success, manage your emotions, and adapt to changing market conditions. To determine the right investment strategy for your unique situation, consult with a financial advisor.

What A Diversified Stock Portfolio Might Look Like

Diversified Stock Portfolio Example

At Capitalist Exploits, they would recommend something like this. Say you have $100k to invest, and you want to build a rock-solid portfolio that should do well over the next 3-5 years.

Look for 8-10 sectors representing deep value, then allocate positions within those sectors and subsectors.

They advocate not exceeding 2% of your capital in any one position, and a maximum of 10% per sector and subsector, which will ensure your winners pay for any losers. Be prepared to hold for many months, if not years.

Spread your funds out over many sectors, and subsectors poised for growth in the current macro environment.



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By following these steps, you can ensure that your investments are backed by sound research and analysis.

Warren Buffet

Examining Warren Buffett’s Portfolio As An Example Of Smart Investments Leading To Long-Term Success

Warren Buffett is the absolute titan of investing, and if you take a page from his portfolio playbook, it could mean hefty returns.

In 2022 alone he scored big wins with ChevronCVX -0.1% (CVXCVX +2.2%) up 52%, and Occidental PetroleumOXY -0.6%, increasing 116%.

To put that into perspective: while S&P 500 was down 18%, Warren's stocks were soaring! Not to mention all the wealth Berkshire Hathaway shareholders have enjoyed thanks to Mr Buffett—his personal net worth topping $100 billion proves why this business mogul deserves respect (and admiration).

If there's one financial figure who can foretell the future of stock moves, it's Warren Buffett.

Warrent Buffet buys when stocks are cheap. Don't let the stocks below fool you into buying what's in his portfolio. These equities are far more expensive today than when he purchased them, so it is important to learn how to do your due diligence when picking stocks to buy.

Warren Buffests stock portfolio

  when to buy and sell stocks

When Is It Time To Buy or Sell A Stock

Investing in stocks is a great way to build wealth and achieve financial success. Knowing when to buy and sell stocks can be the difference between making a large return on your investments or suffering significant losses. There are many factors that come into play when deciding the best time to buy and sell stocks, and it is important to understand how these factors can impact your investment strategy.

The most successful investors use fundamental analysis, technical analysis, and market sentiment to determine when they should enter or exit the stock market.

Fundamental analysis looks at the financials of a company, such as earnings per share (EPS), dividends paid out, sales growth, and other metrics to determine how valuable the stock might be.

Technical analysis focuses on past price trends and volume of trading activity to identify buying or selling opportunities. Market sentiment looks at investor confidence in the stock market as a whole, which can indicate whether now is a good time to enter or exit the market.

Additionally, understanding your own personal goals for investing in stocks is also critical for determining when it’s best to buy or sell them.

For example, if you have a short-term goal of quickly earning returns, then you're likely a trader and not an investor. If you have long-term goals such as retirement savings or college tuition funds, then investing in macro trends and strong companies with good balance sheets may be more beneficial over the long run.

Timing also plays an important role in deciding when to buy and sell stocks. Many investors will look for periods where there has been an increase in trading volume of particular stocks that may signal increased interest from buyers or sellers who think they have identified an opportunity within the markets. Additionally, news events such as executive changes within a company or new product launches can cause swings in prices which may create buying or selling opportunities depending on how investors view those developments.

Finally, it is important not to get too caught up in trying to predict what is going to happen next in the stock market since this can lead to mistakes due to overexposure and lack of diversification within your portfolio.

Instead, focus on staying informed of current events that could affect specific companies. Overall, seek long-term investments with sound fundamentals where you believe both reward potentials outweigh the risks associated with holding those investments over time.


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