Stock-Picking Strategies: Introduction

When it comes to picking stocks, it's important to remember Warren Buffett's number one rule, which is never lose money. His second rule states that you should always remember rule number one. How is it possible to do this? Early in your stock-picking career, it's probably a good idea to buy stocks that have long-term records of providing growing revenue and net income. These would be conservative investments that should not lose massive amounts of money over the long term.

It's important to remember that any company can lose money in the short term, but the cream always rises to the top. Those who lost lots of money in the dot-com crash around the turn of the century invested in companies that had little in the way of revenue, much less income. This is a recipe for disaster.

Companies that pay out dividends can also help you avoid losing money, as you'll earn money from owning stock that would offset any capital losses. Once you've built up some wealth, it might be permissible to start to try and hit a home run or two with a small percentage of your wealth. Attempting this strategy too early can be a recipe for disaster, however, as you could lose all of your investment. That's why it's advisable to wait until you have some wealth built up.