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How to Pick Winning Stocks

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There is no one right way or wrong way to pick stocks, but there are guidelines you can use to help you choose the right stocks to buy. There are different investment strategies, but the bottom line is that if you are choosing your own stocks, you need to do your homework first to give yourself the best chance at choosing stocks that will yield a good return on your investment.

One rule you should consider is diversifying your stock portfolio. Sometimes you will make good choices, but not always. Never make the mistake of putting a significant portion of your capital into a single investment. If you are wrong about it, you will lose out big time. When investing in the stock market today, it is best to limit each investment to no more than 5% of your total portfolio. That way, your losers will not bankrupt your entire portfolio.

Don’t pick cheap stocks. There is usually a reason they are cheap. Stocks that sell for less than $5 per share are usually referred to as penny stocks and are a riskier investment than most higher-priced stocks. Yes, you can lose money on high-priced stocks as well, but remember that penny stocks often have low prices for a good reason.

Another rule is to buy when the price is right. How you determine that will depend on your investment strategy, but one way to do it is to buy stocks that have a low price-to-earnings ratio. The P/E ratio is figured by dividing the current price per share by the company’s earnings per share for the past year. Different investors have different standards for what is considered low enough to be a good buy, but many feel that anything over 40 indicates a high-risk stock.

Ultimately, you need to come up with your own criteria for picking stocks. When you are new to investing in the stock market, it is best to set up a practice account with stock trading simulator software to play around with different strategies before you start investing for real. This will allow you to gain some trading experience without any risk.

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