The Best Stock Pick?

by James Mair

Published on this site: February 7th, 2004

Dear Stock Investor/Trader,

I've titled this article "The Best Pick". Contrary to what you may think, I'm not going to talk about what our best pick has been. Instead I'm going to look at it from two different angles.

Many times investors are asked by others what their best pick has been. Naturally we tend to figure out in our heads which individual pick has gone up the most. It is simply a natural human reaction to do so. Although in most cases this will turn out to be our best pick, there are two other types of picks that could also be amongst our best picks.

The first one is the one that we didn't make. That's right. If we are seriously considering buying a stock and then we decide not to, that is still considered a pick/decision. In some cases the stock may have very well ended tanking and never came back up or it might have even gone out of business. There have been as many of these types of stocks over the years as there have been great winners. In some cases the poor performing stock may very well have been a great winner at one time.

It's very easy to get caught up buying it when it has been flying high. It's making the news all the time, everybody's talking about it and it seems like everyone but you is making money on it.

Unfortunately you may just very well be buying it right near a frothy peak, the market may be about to enter a bear market, their business may be about to enter some very hard times or their business may have very well seen their best days.

In any case, if you didn't buy it and the stock did tank; the loss or per centage loss you avoided may very well end up being one of your best picks.

Another angle to look at your best pick from is not from an individual trade but from a cumulative effect. By that I mean that you continue to add more to an existing pick. You end up increasing your average price, which drops your overall return on that stock. But when you look at where you started buying it and where it is now and the fact that all future re-investments have been profitable; it too may end up being one of your best picks.

There are many examples we could look at to demonstrate this. We'll use Cisco Systems as an example.

Imagine if the day Cisco started trading someone recommended buying 100 shares of it. Unfortunately for you, you didn't hear about the recommendation until six months later. So you naturally said that since it has already gone up you're not going to buy any, and besides that, you want a new pick.

Well, even if you had got in six months later, your 100 shares would have cost you more than if you got in right away on the original recommendation. Nevertheless your 100 shares would now be 28,800 shares courtesy of their stock splits. At Cisco's current price of $28.33 that totals $815,904.

That's your original 100 shares. Imagine if all along the way you kept buying some more shares of Cisco. Maybe you bought some after some good news, maybe you bought some after a correction. Maybe based on technical analysis and recommendations you sold your Cisco at different points and got back in at lower prices. End result is that there has been nothing wrong with buying more shares of Cisco, or a current pick, all along the way.

As you can see in our current portfolio below, we recommended buying Cisco at $14.48 just a little over a year ago and it has done nothing but go up ever since. In other words, in the last year there hasn't been a bad time to buy some or even some more Cisco.

Please remember that we consider all holdings in our portfolio to be valid current recommendations. The fact that Cisco is in our current portfolio means that we recommend buying it as opposed to each and every day sending you a recommendation to by Cisco.

Success in your investing.

James Mair is the president and is incharge investment research at Stock Spies Inc. This article was written by James to help all types of investors succeed with their financial plans. Visit his site to find out how you can benefit from his advice along many other subscribers http://www.stockspies.com or mailto:[email protected]