Stock Picking for the Financially Illiterate

I'm going to preface this post by saying I am not a financial expert. I am not a stock broker. I don't even know how to read the stock page in the business section of the newspaper. I do own a few meager investments...an IRA, mostly. I also plan to stash some cash into a high-yield savings account with an online bank, which pays a lot more interest than my local brick-and-mortar banks and credit unions.

So what do I know about picking the next hot stock? Well, to be honest...nothing. However, I do read...a LOT. Lately, I have read a lot of articles about people of modest means who leave hundreds of thousands, if not millions, of dollars to schools or charities after they pass away. I also chronicled the uncanny stock picking ability of Ed Crawley, a parking lot attendant who earns $20,000 and has amassed a small fortune worth half a million dollars.

What do they all have in common? They all picked good stocks, and held on to them for a long, long time. That's it.

I know, that doesn't sound very sexy, but really, that's all they did. And you know what? It worked, and it seems to work more often than not.

So how do you go about picking a "good" stock? Stock brokers and financial advisers like to make this seem like a very complicated process. They have charts and graphs and complicated formulas for figuring out when to buy and when to sell. Well, what if you don't have a stock broker, or know how to read those charts yourself?

Then I remembered a story I saw on TV a few years ago. I used to be a TV reporter, so I got to see a lot of other reporters' stories, but this one caught my eye. It was about a woman and her husband who based their stock picks on TV ads.

The TV ads were not for stocks or stock investing software, or for a brokerage. She simply watched TV, and when she noticed a particular company was running an especially large number of commercials, she and her husband would buy some of the company's stock.

They didn't buy fly-by-night, infomercial type stuff. They invested in solid companies like Pepsi, Kellogg's, Levi's, Nike...companies that have been around, know how to market and were likely to be around a long time. This couple were doing VERY well with their investments. As goofy as this idea sounded, I saw that it actually made sense.

So I started looking around my house and taking notice of the appliances, services and products that I purchase on a regular basis. I like these products, I buy them often, I will continue to buy them...so why not buy a piece of the company that makes them?

For me, this would mean purchasing stock in companies like Apple, Coca-Cola, Whirlpool, Google, and CVS. These companies have all done quite well for themselves, and I've helped them with their profit margin through my purchases, so why shouldn't I make some money in the process, too?

Sure, these stocks will go up and down. All stocks do. But, if you pick stocks from good solid companies whose products and services you purchase, you will pick far more winners than losers. Just remember that you have to be in it for the long haul. These are stocks you pick and stick away for retirement, not stocks that you use for day trading. If you want to diversify and not pick all your own stocks, make sure your mutual fund or IRA invests in the kind of brand-name, household products or services that you use all the time. Warren Buffet, acknowledged to be the best stock market investor of all time, picks these types of so-called "boring" stocks...because they make money, and they do so consistently.

Some may argue this type of stock advice is what you might hear from "rich old white guys" who already have money. But, that's my point. They are RICH old white guys...and they have money. They must be doing something right...so why not do what they do?

Don't just pick a stock. Pick a company you LIKE, whose products you BUY, and will CONTINUE to buy. Preferably, it will be stock from a company which pays dividends that you can then reinvest.

Why let all the "rich old white guys" have all the fun?