Hi Irwin: You are right. We should talk about stock selection.Then all we need is for the market to go up so that AIM will give us something back to invest again>>grin<<.
So how do you find good AIM candidates?
I have not been really good at picking individual stocks.
I have been looking at Exchange Traded Funds for in the future.Anything from conservative dividend paying REITS to biotechnology.
Toofuzzy
Take the road less traveled. It will make all the difference.
Hi Irwin, Selection is a tough art or science. I know I'm better at it today than when I started in 1971 and when I went full time in 1986.
I can say that one of the things that has made me more successful over the years has been to stick to some guidelines that have worked consistently. When I step beyond those boundaries I usually end up calling it a "Learning Experience."
I suggest that before one attempts to pick a stock, one should do some cogitating on macro-economics. No use picking the best horse shoe factory unless you know we've just pumped the last gallon of of Crude out of the ground. If feasible, think for a while about long term trends. Right now we could guess that energy is going to become more precious over time, the population of the U.S. will continue to shift toward the aged with the Baby Boomers, there are side effects to this demographic change. People will continue to want to talk on the phone, surf the net, have babies, buy new cars, etc.
Maybe then one could settle on 5 or 6 market sectors that look good for the next decade. At that point one could stop and study Exchange Traded Index Sector Funds (ETISFs) to find the ones that most closely match the long term trends that are expected. Applying AIM to these sectors might be all we need to do. Let the Sector Rotation continue and let AIM harvest the natural volatility. All the while the sector funds should benefit from the trends and give us growth of underlying equity value. For those sectors that pay dividends, the total return would be enhanced by that as well.
Now, we know that these sectors are going to be good for a long time to come - even if they may be volatile or go through periodic valuation swings. Each sector then becomes a place for further study. Head to the library and queue up for the Value Line book. Look up the sectors that interest you and look over the companies in that sector. Pick the three highest quality companies. From that list, make a determination about which one might be the best suited to AIM by annual price High/Low ratio for the last 5 years, BETA and Stock's Price Stability, all which are listed there. If the one most suited for AIM is the best quality one, then the decision is easy. If it's third on the list, then see how close a 3rd it is.
This is a "Top Down" approach. We're looking at MegaTrends first. I still have a video tape put out by PaineWebber's chief economist from 1990. I'm sad to say that I didn't listen nearly as well as I should have when I first watched it back then. There really are economists that understand long term trends. This guy was one of them. He preached a decade long decline in real interest rates and inflation. He was dead on. He told what areas of the economy should benefit from this and if I remember right, he was pretty good at this, too.
So, maybe one should also take a look at some of these people's opinions that have had good long term track records in judging trends. Then invest in the trends either through ETISFs or individual stocks.
Remember there are three parts of an investment that add up to Total Return - Equity price appreciation, Yield and Volatility Capture. Don't ignore the first two just to find the third.
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