- Money Morning Australia

Picking Winning Stocks for Retirement


Written on 31 October 2013 by Kris Sayce

Today we're going to take things one step further. How to pick winning <a href="http://www.moneymorning.com.au/category/stock-market/stocks-and-bonds" title="more on stocks"><b>stocks</b></a> to make sure you have enough money to see you through <a href="http://www.moneymorning.com.au/category/super-retirement-wealth" title="more on retirement and superannuation"><b>retirement</b></a>…

It’s day four of ‘Retirement Week’.

This afternoon your editor will sit down for a chat with retirement and superannuation expert Vern Gowdie, and Sound Money, Sound Investments editor Greg Canavan.

We’re broadcasting the discussion live. If you’ve registered for the event be sure to tune in to the conference call website in plenty of time.

The event starts at 2pm sharp.

So far this week we’ve looked at risk, asset allocation, and a simple way to set up an independent savings plan, starting with just one dollar per day.

In today’s Money Morning we’ll take things one step further. How to pick winning investments to make sure you have enough money to see you through retirement

If you want to know how many ways there are to pick stocks, the answer is, more than you can imagine.

Of course, not all of them produce winners. In fact there isn’t a system or methodology that produces a winner on every trade. But somewhere there probably is a system that produces a loser on every trade!

But before we get on to the subject of picking winning stocks, remember that this is part of your overall strategy. Before you get to this stage you need to go through the steps we’ve covered so far this week. You need to understand risks, allocate your asset exposure, and save so that you can invest.

Once you’ve done that then you can start thinking about how you’ll select each investment based on the risk, where it fits into your asset allocation, and how much of your savings you’ll use.

You Can’t Pick Stocks Like You Pick a Meal

Easy right? Not quite.

Picking winning stocks isn’t like ordering an entrée, main course and dessert from a menu.

If you buy and sell shares based on fundamental investing (meaning that you look at what the company does and its financials) you could be a value investor, a growth investor, a speculator, an income investor, or a contrarian investor.

Or you could be a combination of those…or a different type of fundamental investor entirely.

If you buy and sell shares based on technical analysis (meaning you look at price charts) there are 1,001 different methods. You may trade long or short – or both. Or you may base your trading on Fibonacci, Gann or Elliot Wave theories.

And that’s just naming a handful. There are many, many other ways to trade using technical analysis.

By now we may have put you completely off the idea of being an active and independent investor. That would be a shame. But if that’s your decision, that’s fine. Active investing isn’t for everyone (check out Vern Gowdie’s essay below).

But if you can stick with it and develop an approach that you’re comfortable with, you stand a good chance of becoming a successful investor.

So, is there one approach that’s better than others?

The easy answer would be to say that Warren Buffett’s style of value investing is the best approach. After all, he’s the world’s richest man.

But it’s not as straightforward as that. What suits one person may not suit another. Every investor has his or her own personality. Thousands of investors try to follow Buffett, but with mixed success.

You Don’t Have to Reinvent the Wheel, but You Can Change it

So quite often the best thing to do when saving and investing for retirement is to develop your own approach.

It doesn’t mean reinventing the wheel; you just get to alter it a bit. Odds are you’ll take a bit of something from a number of sources. For your blue-chip growth stocks you may look for value.

For your income portfolio you may look for earnings growth. Or if you want income stability, something like Nick Hubble’s ‘Security Ladder’ may fit the bill.

And for your small-cap punting stocks you’ll probably look for pure speculation…the stocks that can give you the biggest bang for your buck.

In short, as much as we’d like to tell you that there’s one secret winning formula, it wouldn’t be true. What’s most important is to think carefully about the criteria we’ve discussed this week and then adapt it to your own needs.

If you do that you’ll stand a great chance of avoiding some of the big investing pitfalls (such as over-exposing your asset base to one asset class) while still giving yourself the best possible chance to achieve your retirement goals.

Cheers,
Kris+

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