12/14/2023 0 Comments Stocks predicted to skyrocketNot growth at all costs, but a combination of sustainable growth and value.Ĭriteria 7: The company is trading for a reasonable valuation. They compete over quality, rather than just on price.Ĭriteria 5: The company generally has management with long tenures and a focus on long-term results.Ĭriteria 6: The company enjoys profitable growth. With that said, here are the 8 main criteria I used when selecting top stocks to highlight for this article:Ĭriteria 1: The company benefits from long-term trends and has little foreseeable risk of obsolescence.Ĭriteria 2: The company has above-average returns on invested capital and a durable economic moat to keep it that way.Ĭriteria 3: The company has a strong balance sheet, and solid historical performance during recessions.Ĭriteria 4: The company is a premium provider. This helps build good investment fundamentals because they focus on company performance more-so than fluctuations in the daily stock price. Rather than just hoping the stock price moves up rather than down, dividend investors tend to pay attention to the underlying fundamentals of the company, including the growth and safety of their dividends, and watch for strong long-term performance. You can buy shares of companies, those shares produce cash dividends that grow each year, and you can reinvest those dividends into more shares or you can spend them. Dividend growth stocks as a group have statistically mildly outperformed the S&P 500 for decades too, which doesn’t hurt. While index funds can seem distant and vague, buying and holding a collection of hand-picked dividend stocks that grow their dividends every year at an exponential pace just “clicks” for a lot of people, and builds good investing habits. This means investing in companies with 10+ years of consecutive dividend growth, sustainable dividend payout ratios, and solid growth prospects.Īs a strategy, it provides more reliable investment income than index funds, gives investors an opportunity to learn about a variety of businesses, and turns on the “collector’s instinct” in a lot of people that can get them excited to invest more money. In fact, I think most people should hold some index funds.īut I think dividend growth investing is a good strategy for many hands-on people as well. You need a strategy that performs well, but also one that you’re comfortable with and that will entice you to invest regularly.įor many people, that’s index funds. Investment Criteria for Top StocksĮven though markets are hard to outperform, I think individual stocks can be a valuable component of an investor’s portfolio.Īs I explained in my article about investor psychology, the most important thing you can do is find the right investment strategy for your unique needs and personality. It’s simple, but not easy, to stay focused and buy high-quality companies at reasonable prices on a consistent basis. However, there are plenty of independent, disciplined investors that build serious wealth in the market over the long term by following similar methods. Then when a stock market crash eventually occurs and top stocks are on sale everywhere, they deploy their cash hoard and snatch up the bargains of a decade. Meanwhile, value investors like Warren Buffett are building up cash during euphoric bull markets, because everything is expensive and very few stocks meet their strict investment criteria. They keep doing that over years and the returns end up being below a buy-and-hold baseline. That’s mainly because investors tend to buy stocks or funds during market tops when they are expensive and all the news is good, and then sell stocks and funds after they crash, when they are cheap. As calculated by Dalbar Inc, and charted here by JP Morgan, the average investor underperforms a 60/40 equity/bond portfolio:Ĭhart Source: JP Morgan Guide to the Markets In fact, after fees, only about 11% of actively-managed funds outperform the S&P 500 over a significant period of time:įor the average non-professional investor, it’s even worse. The truth is, investing is hard, and building a portfolio of top stocks to buy that beat the market is something that even financial professionals have trouble doing consistently. The appeal is understandable, but most of the articles that pop up are ones quickly written by freelancers that often don’t even invest in the stocks they pitch. They’re just writing for one-time clicks and pageviews rather than doing serious research to provide value and establish long-term relationships with their readers. Hundreds of thousands of people search for terms like “stocks to buy today” or “best stocks to buy” or “top stocks for 2023” every single month.
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