The 2 things every investor needs to beat the market with individual stocks are:
1.) a strict set of criteria for what to buy and
2.) a strict discipline for when to sell
The 3 best methods for selecting stocks are:
a.) momentum investing
Momentum stocks are companies that lead the market in sales and earnings growth, product innovation, and price action. They tend to rise faster in a bull market and fall harder in a bear market or correction.
b.) value investing
Value stocks are companies that are cheaper than most on the basis of price-to-sales, price-to-earnings and price-to-book-value. They usually pay higher dividends than the average stocks. These types of stocks might rise less in a bull market but hold up better in a bear market.
c.) follow corporate insiders
Insider stocks are these stocks where the corporate officers, directors and major owners are buying substantial amounts of their own companies’ shares with their own money at current market prices. Given that these individuals have access to all sorts of material, nonpublic information about their companies’ future business prospects, it’s no surprise that these stocks tend to outperform in good times and bad.
These are 3 different approaches requiring entirely different metrics. They all work over time and none involve trying to outguess the market. Probably the best approach is to build a well-diversified and weighted portfolio consisting of a mix of all these 3 approaches.
Sven Franssen