A tool box of basic ideas to zero in on the stocks to pick

Dubai: Picking stocks need not be reserved for financial gurus and degree-wielding mathematicians in investment banks.

All that's needed is a toolbox of simple ideas that filter and zero in on companies investors should find attractive.

Investing is akin to farming, whilst trading is more like betting. Both can be very lucrative. However, in the main, investing is much easier, more leisurely and less risky. The following rules will help you select good stocks, even in today's rough financial climate.

Build a portfolio

A good portfolio is a wide range of stocks. The fewer stocks you have, the rougher your ride will be.

Aim to own 30 stocks. Keep buying new stocks, rather than "going big" on ones already owned. When you have 30, increase position sizes. Until then, don't load up on anything. Buy some Emaar, but don't then buy into more property. Next, buy a good bank.

Get rich slow

Trying to get rich quick will guarantee you get poor fast. Think in terms of three years for each investment. Trading attracts expensive fees; investing is relatively cheap. Trading is fraught, investing less risky.

Timing the market is difficult, yet seeing the long- term big picture is often easy. Stock markets in the Middle East have been pretty flat over the last few years.

Now the bubble is over, the chance to invest in solid companies at a good price has arrived.

But don't hurry. Take the long view.

Play with the effects of percentage growth on your money. Learn to weight the relative values of companies.

If company A has a higher valuation than company B, but seems to be the same in most other ways, is there an opportunity?

The world is an innumerate place. Even professionals are often caught out by obvious figures. For instance, divide the US national debt by its population and tell me, is anyone doing basic math in that country?

It is ironic basic arithmetic can give you the edge. Looking at the many companies in the Gulf that have fallen so far, you can be left wondering if anyone was doing basic calculations back then. Are they now?

Take your time

The world is full of opportunities. Miss one, no problem. There are always plenty of bargains to be had.

Use the rule "If you think it's a good pick, it isn't. If you know it's a good pick, it is."

While you are waiting, keep looking and learning by keeping up with the daily news. For example, the DFM's own stock price keeps falling.

That can't go on forever you might think, but only watching and waiting patiently will give you a chance to pick the bottom.

I never buy a stock if it is tipped to me — ever. If you buy a stock on a tip and if it turns out well, you will never know why you succeeded. If you lose, you feel awful. Ignore tips.

Conducting your own research is a must. If you think Tamweel is great, you should know exactly why you think so.

The research process will teach you how the market works and how companies and their values change. Without research you are naked. If you cannot do the research yourself, don't buy the stock, no matter what anyone says.

Lastly, always remember emotions blur your critical faculties — fear and greed can make fools of us all. If you start with safe steady stocks, you will build up a good platform from which to build your skills.

The writer is CEO of financial information site ADVFN.com and author of titles including 101 Ways to Pick Stock Market Winners. Opinion expressed here are the writer's own and do not reflect that of Gulf News.