Stock picking is like trying to find Mr/Miss Right.
We probably all known someone who says they want someone steady and reliable, who will be there in times of need, and cares about them as a person… and then keeps picking up dates in bars because they look good, dress right, or say things that make our friend feel special, if only for the moment.
Investments are a lot like that. The ones that everyone is gaga over, that seem to have unlimited growth prospects, and always seem to be one step ahead of the competition, are the ones to avoid. The seeming promise of eternal economic bliss is too good to be true, just like the stranger in the bar who says all the right things, making us feel like we’ve found our soul mate, but who can’t even remember our name in the morning.
A good mate isn’t the person with all the right words; a good mate is the person with the dedication to stick with you when times get rough, who wants us for who we are, not for what we can do for them, be it buy them some drinks or add one more notch to the bedpost.
A good stock pick, likewise, is not the company everyone is sure will take over the world in the next couple years, with the snazziest technology and the rock-star CEO. A good stock pick is the unrecognized company, that will be ready for whatever changes the economy throws it, and has an edge over the competition that no one but you see; a diamond in the rough.
There will always be investors who chase today or yesterday’s hot story, and drive the price beyond all hope of returns based on future earnings. Just as there will always be men chasing the beautiful girl who knows she’s beautiful, and plays men off against each other because it makes her feel special, and there will always be women who fall for the silver-tongued Don Juan, only to be surprised when they are instantly abandoned.
Don’t be one of those investors. Look for value where it has not yet been recognized, in companies that will faithfully pay dividends from strong cash flows for years to come. In the stock market, there is no such thing as hooking up. When you by, you’re making a commitment, so try to commit to something that won’t require a messy divorce.