How to Become an intuitive Stock Picker - Choose better, Profit more

How to Become an intuitive Stock Picker

Peter Lynch, former manager of Fidelity Investments' high-flying Magellan Fund. Lynch really has a way of communicating with investors that most Wall Street gurus don't have. He's a true people guy. For instance, his advice on choosing stocks is short on mathematical models and analysis spreadsheets that are so favored by many in the investment industry. Instead, he advises going down to the local shopping mall or grocery store and watching what people are buying. Or watching what stores have the most foot traffic.

For a mutual fund guru, Lynch is a big fan of having YOU make the ultimate investment decisions. You decide what your investment time frame is. You decide the risk you're going to take with your portfolio. You choose the stocks that work for you and not necessarily the other guy whose goals and needs probably don't match your own.

He's also a big advocate of another investment strategy I like - portfolio testing. What this means is you go ahead and plunk down an imaginary $5,000 or $10,000 in a "test" portfolio to see how it does for a while. Most folio companies have such testing capabilities and they've proven very popular with investors who want to take their new folios out for a drive without the commitment of buying them.

Here are some more pearls of wisdom on stock selection from the great Peter Lynch, as he provided in his book Beating the Street, written with John Rothchild (Simon & Schuster, 1993). All are well worth knowing:

- Firms in slow-growth sectors like utilities or waste management are often written off by investors as unglamorous investments in mundane industries. But think about it. Lynch says that "mundaneness" can limit the competition and increase chances for growth. He cites Superior Industries, which makes wheels for the automobile industry, as a good example, rising 719 percent from 1985 to 1992.

- Firms that create products people have to keep buying like soft drinks and toothpaste will always have a market. Lynch cites Coca-Cola and Gillette as solid, long-term performers, since folks still have a soft drink or need to shave during a recession.

- Firms with sales growth but lousy earnings. Lynch advises not confusing the two. It's possible for a company to do well in sales and growth of sales revenue, but still not make money. Sales growth doesn't drive a company's value; earnings drive long-term growth.

- Firms with a niche in their market or industry may do well in the long term if their fundamentals are strong. Lynch cites Southwest Airlines, a stock that rose 701 percent between 1990 and 1998.

- Firms with strong balance sheets - if ten stocks are in an industry that is losing money, the two with good balance sheets should outlast the eight in heavy debt. To locate such companies, Lynch advises finding their annual reports either directly from companies or on the Web.

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