March Madness: stock selection criteria for savvy fans and smart investors

Coastwise Capital Group | Scott Kyle

Smart stock selection criteria can help improve the odds for everyday investors.

By Scott Kyle, Chief Investment Officer at Coastwise Capital Group

With the college basketball tourney in full swing – and millions of devoted fans pouring over bracket picks – it’s a prime time to discuss the topic of stock selection criteria.

Market commentators often say, “It’s a stock pickers’ market.” Unless you are buying thousands of publicly listed securities throughout the world, by definition you are always a stock picker. But there are times when stock picking becomes even more essential to determine returns — and we are likely now in one of those periods.

Let’s split the market into 3 buckets: wildly overvalued (think 1999), hugely undervalued (like March of 2009) and fairly valued. It is within this final context that stock selection becomes most important to achieving superior returns.

Opportunities arise when great companies temporarily falter, providing investors the chance to buy securities at 10% – 20% reductions. It is like a micro-crash: rather than the whole market dropping, a given stock drops due to a non-fundamental issue, yielding the opportunity to pick up relatively inexpensive shares.

But you need to have the ammunition – the cash — to take advantage of such scenarios, as well as a watch list of high quality companies. If your portfolio consists of 30-50 positions, you should have another 50-100 companies you monitor regularly:  that way, if opportunity strikes and one of these companies makes the “% losers” list for the day, you won’t be starting from scratch on your research. That said, it is important to note that there is bad news, and then there is bad news. Sometimes stocks crack because the company is broken. In this case, you should resist the temptation to purchase what may appear to be a bargain but may instead be a falling knife. This is usually the case when the news relates to restating financials or executive departures. Monitor the situation but don’t pull the trigger yet. There are often additional down legs to be had, especially as all the investment banks pile on their after-the-fact downgrades, putting further near-term downward pressure on the stock. In contrast, the opportunities I am referring to occur when good companies falter on a short-term basis.

The reality is, it is always a stock pickers’ market – and this phrase is just a cute term financial commentators use when they want to look smart but have nothing meaningful to say about the overall market.  However, after big run-ups like we’ve had nearly unabated since October 2011, where stocks in general are neither screaming buys nor shrieking sells, knowing how and when to pick up some shares on the cheap can be a good way to reduce risk in your portfolio and enhance returns.  In the meantime, enjoy the tourney – and contact us at your local San Diego money management firm to learn more: www.coastwisegroup.com.

The information in this article is strictly for educational and illustrative purposes and is not an attempt to furnish personalized investment advice or services.

Related posts:

  1. Amidst Occupy Wall Street demonstrations, what’s the word from the 1%?
  2. Risky business: understanding and defining investment risk
  3. High net worth investors shifting focus from cash to commodities for 2012
  4. Financial turmoil prompts wealthy investors to seek cover in the form of “catastrophe portfolios”
  5. Expert money management yields potentially recession-proof gain for wealthy investors

Short URL: http://www.lajollalight.com/?p=60913

Posted by Social Media Staff on Mar 24, 2012. Filed under Columns, Scott Kyle, Sponsored Columns. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

Leave a Reply

La Jolla Community Calendar

Facebook

Bottom Buttons 1

Bottom Buttons 2

Bottom Buttons 3

Bottom Buttons 4

Bottom Buttons 5

Bottom Buttons 6

RSS North Coastal News

  • ‘Downton Abbey’ Spring Tea to be held by Del Mar Community Connections April 18, 2014
    All things “Downton Abbey”— from ‘20s tunes to exotic teas — will be featured as Del Mar Community Connections holds its annual spring tea on Wednesday, April 23, at St. Peter’s Parish Hall, 324 14th St., Del Mar. The 2-4 p.m. event includes music from the “Downton” era performed by entertainers “Janet and Jay” and piano music provided by Lori Ritman, who al […]
  • Week in sports for Carmel Valley, Solana Beach and Del Mar April 18, 2014
    Cathedral Catholic extended its winning streak to 11 games as the Dons opened Western League play with a 7-2 victory over Patrick Henry on April 9. The victory followed a 7-4 nonleague win against Mater Dei Catholic two days earlier. Will Law had three hits including a home run and a double and drove in four runs to lead the Dons in the Patrick Henry game. […]
  • Man pleads guilty in fatal Del Mar hit-and-run case April 17, 2014
    A man who drove drunk and struck a marine biologist in a crosswalk in Del Mar, then fled the scene, pleaded guilty April 16 to gross vehicular manslaughter while intoxicated and a hit-and-run allegation. Christopher ``Chip’’ Stockmeyer, 41, faces between nine and 15 years in prison when he is sentenced June 20 for the March 28 death of Rachel Morrison. […]