The secret to choosing good stocks is that there really is no secret to it. The winning techniques are tried and true. They don't work all the time, but they work often enough that the methods employed by successful stock investors tend to be more alike than different.
Information is the key. Having the right information about a company and knowing how to interpret it are more important than any of the other factors you might hear credited for the success of the latest market genius.
Information is even more important than timing. When you find a company that looks promising, you don't have to buy the stock today or tomorrow or even this month. Good stocks tend to stay good, so you can take the time to investigate before you invest. You get much of the information you need to size up a company's prospects on the Web, and a lot of it is free.
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The Kiplinger way to succeed in the stock market is to invest for both growth and "value." That means concentrating the bulk of your portfolio in stocks that have good fundamentals -- as measured by earnings, price-earnings ratios, book values and other key indicators that will be explained later -- and holding those stocks for the long term. For those in search of income, not growth, it means applying the same tests so you don't make any false and risky assumptions about the stocks you buy.
The Kiplinger way is not based on buying a stock one day and selling it the next. It does not depend on your ability to predict the direction of the economy or even the direction of the stock market. It does depend on your willingness to apply the right measures before you place your order.
You should aim for an annual return of 10% to 12% per year on your investments. That's an achievable range if you plan your approach thoughtfully and stick to your plan.
By knowing how to use the basic tools that stock analysts use to separate the good from the bad, you should be able to find the stocks most likely to meet your goals and strategy. Take a look at the yardsticks professional money managers use to measure security values. You can use them, too.
So how do the pros sort out the good stocks from the bad? By comparing the following characteristics...
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