A large part of the battle of ASX investing is actually finding companies that you want to put your money in. It's all well and good to analyse a share price graph and look for patterns or work out a buy price and how much cash a business might return to you in ten years, but initially finding that hidden gem is perhaps the biggest struggle of all.
After all, the market is supposed to be efficient at pricing stocks according to their current and future values (which it is, most of the time). Therefore, you have to spot something the market has missed to make real returns in investing.
Here are 3 tips that I think any investor can use to buff up their stock picking skills.
Stay within your circle of competence
'Circle of competence' is a Warren Buffett phrase that basically means your level of understanding. Buffett famously passed on investing in Microsoft back in the day because he had no understanding about how computers worked. If you have no knowledge of technology, a cutting-edge robotics company should probably not be on your investing menu. If you don't understand how banks work, don't buy shares in one!
We all have interests and passions. Try to find companies that fall into these and you will be a more successful investor.
Don't let others make your investing choices
At the end of the day, you invest with your money, and no one else is really going to care how you do it (outside your family, anyway). So don't run off and buy exactly what Warren Buffett is buying, what the person on YouTube tells you is a great stock or even what your favourite Foolish writer is telling you is a buy without doing your own research first!
Look at the world around you
I was recently on holiday and saw vendors in a street market using a strange white box to take their customers' cards. It turns out a US-based company called Square, Inc. (NASDAQ: SQ) sells these boxes and has been growing at a rapid pace. I'm now very excited to find out more about this company and what it does.
We all live in the same society and most of us are affected by similar consumer trends. If you can spot these trends and work out where the world is going, it might give your investing an edge!
Foolish takeaway
Sometimes, it's the simple things that can make you a great investor – like Warren Buffett noticing that Coke lids made up more than half of the bottle caps he collected as a child. If you stick to common-sense principles and deploy your money carefully, I think it's a recipe for success.
