How I Pick Stocks

I wanted the chance to inform all readers about how I form opinions about stocks. You will see me more focused on the technology sector, since this is my area of expertise. In general, any reasonable analyst know that the only way to "beat" the market, is to have some sort of advantage. Typically, this advantage is in knowing more about your industry sector than outsiders.

Inside technology stocks, I will most often discuss companies I feel are on the right track with their R&D or acquisition strategies. I will NEVER post about companies based on some arbitrary "technical analysis" numbers, because I think technical analysis is pretty bullshit. (Scroll to the bottom of this post if you want to know more about technical analysis.)

I believe in the efficient market hypothesis (EMH). This is not to say that you can't make any money on the stock market. But it does say, without any advanced (unknown to public) knowledge, you will not make excess returns or money from the stock market.

As such, I my stock analysis rests upon fundamental analysis, or the underlying reasons for a stock's worth. Remember, a stock is a portion, or share, of a company that you own. You are entitled to the company's value in the proportion that you own. Therefore, the equation for a stock's value is:

Company's Total Value / # of shares outstanding = Price per share

Much of the analysis you see rests upon how the company's total value changes. What makes that number hard to calculate is that a company's worth is not just the value of computers, desks, products, etc. that is currently owns, but also the future value of the company, such as the intellectual worth of the employees, inventions being developed, etc.

I will most likely not do a rigorous calculation of company total value most of the time I suggest a stock. This is because a) It is time-consuming and b) There are plenty of analysts that do. What I will add is my own opinion based on my technical and financial background.

Also, just remember that there are NO necessarily bad/good stock picks. You have to consider your portfolio as a whole. Making a bet on one thing is never good. Diversification is always key.

Finally, read my posts for ideas. Don't read my posts as a way to get rich quick.

Technical Analysis
A little more on technical analysis - it is the "science" of reading the historical prices of a stock and figuring how its current momentum. Essentially, you are looking for indications that either the stock is rising very fast, slowing down, falling, etc and you hope to predict future prices from looking at past prices. As a believer of EMH, I believe this type of analysis is inconsistent with EMH. More importantly, since this analysis is so simple that any 5th grader can tell you when a stock seems to be going up or not, I have to assume that there are no excess returns you can gain from using it. After all, if everyone's making money from it, where is that money coming from? Remember, when you make money, someone has to lose it.