Recently an investor on social media asked me this question. It is a good question many new investors struggle with. I also have seen it in my daughters when I was teaching them how to invest. Where do you go to find the stocks, how do you determine which stocks to buy?
Which stocks to buy?
Here was my response:
- I go to dividend aristocrats list.
- I pick the stocks I like and want to own and also have a high dividend yield.
- I also go after some high dividend payers, mostly ETFs that are selling bonds (like municipal bonds that are tax-exempt) and also that are involved in options strategies such as QYLD, and lately, I found NUSI and ARCC (but I have not researched them yet).
- Then I use Fastgraphs to evaluate these stocks and determine which are undervalued and which are overvalued.
- I start accumulating those that are undervalued and keep them in my watchlist in case they reverse to the means.
- Those stocks that are overvalued I trade options around them but do not buy the shares.
Of course, there are a few exceptions such as AAPL that is way overvalued but I decided to accumulate anyway because I think the stock will trade at a premium from now on for a long period of time (like Amazon does) and waiting for the right valuation would mean missing on the company’s growth.
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