2 Steps to Find Good Long-Term Stocks
11/02/2011 6:30 am EST
There are a number of steps investors can take to find stocks for long-term investments, says Nate Pile, who walks through the process to pull up a solid pick in this exclusive interview with MoneyShow.com.
Alright. Give us the rundown. First, what to do for long-term investing.
The first thing that I look for when I’m putting together some new ideas for my newsletter is I like to find companies that have a great long-term story.
I don’t know if Warren Buffet ever actually said it—but it’s who I heard it attributed to—is he looks at companies and thinks if we bought them today and they closed the stock market for five years, would we be happy with our investment when the stock market reopened. In other words, is the company going to be doing something during those five years?
So I’m looking for companies that have a compelling long-term story, whether it’s a new product or a new service…or oftentimes it’s new products that require new services to keep them running. A lot of what I do is in the biotech and high-tech space, so those two things go hand-in-hand sometimes. The first thing that I do is look for those long-term compelling stories.
And how do you find those stories?
All over. I see them in stories that come up in the media about some new product. Sometimes other investor friends will point out to me a little company that they found. Of course with the Internet, things are always popping up as interesting news stories to look at. So, kind of all over the place.
In Biotech and High tech, it’s not so much when you go to the mall—not the old Peter Lynch approach of see what’s selling at the mall—but even there you can notice things. You know, I’ve been in Apple (AAPL) stock for a long time, and way back when, you could tell that iPods were going to be a big thing. Sure enough… So, they sort of show up all over the place.
What kind of things are you seeing right now?
Right now, I haven’t added a lot of new stocks to the newsletter. One of my most recent ones is Electronic Arts (ERTS), simply because they are a video game publishing company. Of course, that whole space is changing with iPhones and iPods, and Electronic Arts seems to be out at the front of the curve.
They’ve been through some hard times, but the whole social gaming thing and the way that’s playing out is one of the stories that I picked up on, for example, as something that you can see watching kids or even adults these days, in terms of what’s happening.
Are there any other to-dos on your list?
Yeah. After it’s met that hurdle, I look for solid management teams and a good financial situation.
Over the years, I’ve periodically dabbled in troubled stories, hoping that they get turned around, and I’ve just sort of learned that it’s not my expertise. In fact, there are people who make their living doing that. But I found I wasn’t good at it.
I was good at finding good companies and then applying my—now coming up on my 23rd year of following the market, I guess—looking at my past experiences for what promising stories look like as they unfold in the stock charts, and sort of marrying those two things together.
So, the next thing is to find companies that are well financed, and have stocks that are acting the way they’re supposed to, for the story to turn out the way we want it to.