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You Don't Need to Have an Opinion on Every Stock

Investing Tip #4

By Joshua Kennon, About.com

One of the things that successful investors tend to have in common is that they do not have an opinion on every stock in the Universe. The major brokerage firms and commercial banks seem to feel like it is necessary to attach a rating to everything security that is traded. Some popular financial talk show hosts take pride in espousing their view on virtually every business that’s traded.

This is nonsense. Investing is not an exact science. Paraphrasing two of the industries’ priests, you don’t need to know a man’s exact weight to know that he is fat, nor do you need to know a basketball player’s exact height to know he is very tall. If you focus on only acting in those few instances where you have a clear winner and watch for opportunities that come along every once in a while – sometimes years apart – you are likely to do better than the Wall Street analysts that stay up nights trying to decide if Union Pacific is worth $50 or $52. Instead, you wait till the stock is trading at $28 then pounce. Warren Buffett bought shares of Wells Fargo during the real estate panic of the late 80’s / early 90’s at a price-to-earnings ratio of 5! It doesn’t take very many deals like that to make yourself a lot of money over an investing lifetime.

Why do investors find it so hard to admit that they don’t have a clear-cut opinion about a specific business at the current market price? Often, pride is the culprit. For more information on how to overcome these forces, read Rationality: The Investor’s Secret Weapon.

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