How I Invest, Part 4: Picking Stocks

(Credit: Iman Mosaad via Flickr)

(Credit: Iman Mosaad via Flickr)

In this entry, I’d like to get right to the nitty-gritty of how I pick stocks. In some ways, this approach can be a lot of fun — it gives you a chance to think about you investments as companies that do things, and not just as stock certificates that up and down in value.

The following are some of the Peter Lynch principles that have guided my choice in stocks:

1. Invest in companies we already know.
2. Behind every stock is a company — find out what it’s doing.
3. Owning stocks is like having children — own only the number of stocks you can tend to.
a. We don’t need more than five companies in our portfolios.
b. Know what we own and why we own it.
4. Investigate a company’s financials before investing in it.

More details after the jump.

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