I like to choose stocks that have been out of the news for a while. Before I buy a stock, I look at Yahoo Finance to see if there have been recent upgrades or downgrades by analysts or any recent news about the stock or coverage from financial bloggers. My ideal stock has not seen any movement from an analyst for at least 5 years and no real news for the past year. I need that stock to seem new and fresh to stupid money (and even some smart money). It’s the same technique as the marketers who peddle their wares as being “an ancient Japanese formula” or “what doctors don’t want you to know about . . . ginseng.” There is a sensation of newness (it isn’t currently zeitgeisty) with all of the benefits of pedigree (it has an established history).
To hedge my risk, I choose stocks in a particular sector that I believe is stable while retaining enormous growth potential and then choose the best stock out of the bunch. I choose these stocks because I know that when people get spooked, they will pull their money out of oil futures or other high-risk securities and dump them into my blue chips—stocks like Coca Cola, McDonalds, and Johnson & Johnson.
I also have to be intimately familiar and impressed with the business model, but in a way that most people are, or can quickly be made aware. I have little relatives and frequently watch their movies. Disney movies are always popular, but I tend to prefer Pixar. Luckily I know that Disney owns Pixar and Disney has a nearly a century full of intellectual property in their stable. I’ve seen my little relatives flip upon receiving a Minnie Mouse doll and know how powerful that brand is for youngsters, but so have millions of other parents, uncles, aunts, and grandparents. While they may not think immediately about exploiting their children’s joy, I do. But I also know that when those parents are sitting down to pick some stocks and are thinking about Disney, they’ll remember that moment and buy.