Thursday, December 16, 2010

How to Make a Beginner's Stock "Watch List."

Generating new investment ideas in a fairly priced market can often be difficult. Now that the markets have hit a two year high, bargains are becoming harder to find. But for the prudent investor, there is always somewhere, or somehow, for new money to be made. Patience, however, becomes more important.

One key thing for the prudent investor to do is make what I call a "watch list." Your watch list should contain no more than 10 different stocks and should consist of investments that you would love to own, but perhaps not at current prices. If followed properly, at one time or another, there will always be a couple stocks on your list that should be within firing range... or near a price where you can make an entry level purchase.

An excellent way to begin making a beginner's watch list is to consider products and services that you tend to use on a daily basis. By running through your daily purchasing and spending habits, a beginner's watch list can be created fairly quickly. The only caveat with this type of list is to be sure that it contains as few highly discretionary purchases as possible. For example, you may buy jewellery every so often, but it surely is not something that you, or many consumers, need to buy on a regular basis.

For instance, a typical person's spending or daily use habits may look like this:

Product/ Service: Related Investment to Make Money
Shampoo: Johnson & Johnson (JNJ)
Toothpaste: Colgate Palmolive (CL)
Coffee: Tim Hortons (THI)
Lunch: McDonalds (MCD)
Cell Phone Call: Bell (BCE)
Buy Gas: Esso/Imperial Oil (IMO)
Banking: Bank of Montreal (BMO)
Groceries: Loblaws (L)
Pay Car Insurance: Allstate (All)
Medicine/Prescriptions: Shoppers Drug Mart (SC)

Of course, the above list is fairly rudimentary, but lists such as the one above can be made fairly quickly and simply. The next step is to choose a reasonable "entry point," or price at which the stock would be a good investment. This will be discussed more in a future post. Engaging in this quick and simple process can sometimes be surprising and often spurs some exceptional investment ideas.

Disclosure: Matthew Clarke has an ownership interest in BCE, BMO, IMO, and SC.

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