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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75523  
Subject: Re: Looking for Advice Date: 11/10/2006 5:15 PM
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Stock picking is very hard to do over the long term and should be measured against a comparable index(not your friend), which often will not be the S&P 500 index. Most actively managed mutual funds don't beat their comparable index over the long term.

One of the keys to stock picking on your own is keeping good records so you can know how you are doing. A few years ago there was the "Beardstown Ladies" group that sold lots of books about how easy stock picking is and about how well they did. Unfortunately they didn't keep good records and they significantly trailed the indexes.

http://en.wikipedia.org/wiki/Beardstown_Ladies

The Motley Fool has been much better at record keeping but their portfolios that didn't do so well disappear from the web site so their stock picking abilities may not be what they appear to be.

If you don't feel up to meticulous record keeping, one easy way to track of how your are doing is to split your money into two accounts and compare how they do relative to each other. For example you could put half your money into a low cost index fund and put the other half into a brokerage account. In the future if you add money in the you would also split that. You would also have to pay any taxes and expenses from the accounted that caused them. Three years from now you could easily see if you are beating the index. A ten to one ratios also is easy to track.

Finding 20 great picks is hard to do even if you are good at it. Some people decide to split their money between index funds and individual stocks. For example you might put 75% of you money into index funds, and the other 25% into your five very best picks. Thinking that your 20th best pick will beat the indexes is probably wishful thinking. Holding a limited number of stocks will also force you to sell stocks; in some ways it is harder to decide when to sell than it is to buy.

Greg
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