“How do you pick winning stocks?”
That’s easily the number one question I get from friends and followers.
The problem with that question is that stock picking isn’t actually the most important part of investing. Risk, portfolio fit, quality, diversification, position sizing, and how everything works together matter far more. Get those wrong, and even great stock picks won’t save you.
That said, since everyone keeps asking, this newsletter focuses on exactly that—how I pick stocks, or how the magic is made. Consider this an updated version of a much older post.
How Do I Pick Stocks?
It’s a complicated question and not an easy one to answer. I’m generally more of a macro investor than a pure stock picker—though in reality, I’m a bit of both. I always start with the macro side.
By that, I mean I first decide where in the economy I want my money invested. If I think the energy sector will do particularly well this year, I overweight it. That automatically means I must underweight other sectors. In years where I’m unsure, I stay neutral and hold market weights. That’s the macro framework. If I get this part right, even with average stock picks, returns should still be pretty good.
Stock Picking
Everyone gets their ideas somewhere. I’m constantly scanning media, blogs, newsletters, YouTube, and podcasts for ideas. In past newsletters, I’ve talked about how anyone can look like a successful dumb financial influencer—especially in a rising market. They’re everywhere, so be careful. The financial world is an unstructured sea of garbage. Everyone has a bias or some incentive to grab your attention. I’ve seen things online that are borderline illegal and definitely unethical.
I think of finding stocks like thrift shopping. You have to dig through a lot of junk before finding something with real value. Here are some common sources I see almost daily:
Analyst Opinions
Analyst ratings on individual stocks—buy, sell, 12-month price targets, and so on—tend to follow a herd mentality. No one likes sticking their neck out too far. When one analyst lowers a rating, it’s often followed by the rest of the herd shortly after. These are usually broad calls with limited substance.
Active Managers
Most active managers underperform the market in the long run. In any given year, roughly 80–85% will lag the market, and the same is true for hedge fund managers. The winners get the spotlight, but they rarely repeat the following year. There are a few managers who truly know what they’re doing, but they’re not easy to find.
YouTube Influencers
As above—don’t get me started. There are huge incentives to cheat, exaggerate, or sell something. A few are decent and even quite good, but this basket is mostly full of bozos. You have to be very picky.
Artificial Intelligence
Yes, people are using AI to pick stocks. From what I’ve seen, results are hit and miss. AI can be useful for strategy, but when it comes to individual stocks, it’s accessing the same information as everyone else. Any advantage is likely already priced in. The real value may be in how it helps you search for stocks—essentially a more advanced screener. I haven’t fully explored this yet, but there may be value here.
(And yes, AI helps edit this newsletter, btw)
Newsletters (Uh… Like This One)
The problem with most newsletters is that they exist to make money with you—or more accurately, from you. Most charge annual fees. Studies show that, on aggregate, newsletter investing does not beat the market. Survivorship bias makes results look better than they actually are, meaning real returns were likely worse. There are very few newsletters that consistently beat the market. Of those, luck probably plays a role. Still—keep reading this one: unbiased, free, and market-beating.
As you can see, the investing world is highly unstructured. Very few sources are truly unbiased or have your best interests in mind.
I’m always surprised at how willing people are to take sketchy advice. But what are the alternatives for small investors? Broad market ETFs—done properly—are very safe. You can also hire a wealth manager, which works well if you find the right one. They generally outperform individual investors, though not the market itself.
My Go-To Sources
Below is a list of sources I regularly scan for ideas. I don’t blindly follow them—I listen to the pitch and decide whether it fits my portfolio. Most ideas get passed on, but occasionally something interesting shows up.
You’ll notice a bias toward value investing. I prefer cheaper, out-of-favour companies. Buy low, sell high—right? That said, diversification requires owning some growth as well. A mix of styles is always healthy.
YouTube
- In the Money with Amber Kanwar (mostly Canadian)
- Deep Value Hunter
- Everything Money
- Value Investing with Sven Carlin, PhD
- Fisher Investments
- Joseph Carlson After Hours
- Mark Roussin, CPA
Podcasts
- Motley Fool Money
- Excess Returns
- We Study Billionaires (The TIP Show)
Daily Email Newsletters
- Frances Horodelski
- Morning Brew
- The Daily Rip (great heat map)
- Peak Money
The Market Itself
- Look for stupid moves up or down. Good companies go on sale from time to time for no real reason.
For Market Weights
- Fidelity (look under sector performance)
Think of these as the stores worth thrift shopping in. Many of these sources do legwork I’m unwilling to do. I focus on understanding the narrative behind each idea and where it could go right—or wrong. Risk matters. Position sizing matters. Walking away matters. I walk away from most ideas.
Common Sense and Narratives
Woven through all of this is common sense. Eventually, you develop an eye for stupidity. Everything is possible, but not everything is probable.
I do use narratives—the story behind the stock—when deciding whether an investment is worth the squeeze. The market often builds a future based on very little information, and it’s usually wrong, especially early on.
Apple is a good example. I bought Apple around 2012 when no one wanted it. The narrative was that Apple only had about 10% of the computer market and was therefore doomed. But Honda has roughly 10% of the car market—was Honda doomed too? The narrative didn’t hold up.
Many of my positions were bought against consensus. Predicting the future is hard, and when stock pundits try to do it, they’re often wrong. Not always—but often. That’s where being contrarian can generate big returns. Just because someone says something doesn’t mean you should automatically bet the opposite way. That’s a recipe for disaster. Common sense and an understanding of probability are required.
Who Has Time?
When you hold 40 or more positions, you simply can’t follow every company in detail. After buying a stock, I only dig deeper if it’s moving sharply up or down—management by exception. A stock dropping with no news is usually a do-nothing moment or a chance to buy more. A stock moving up quickly is either a do-nothing moment or a chance to trim or sell. Mr. Market creates both bargains and euphoria. Both require judgment.
So there you have it—my process for thrifting through financial noise to find good stocks. Once I own them, I try to forget them. That’s how I manage as many positions as I do. Think of it like recruiting baseball players. Recruiting is the hard part. Once they’re doing what they’re supposed to do, you don’t need to meet with them very often.
I’m interested to hear from you – what sources have worked best for you?
Marc’s Monthly Moves
Sold
- Nothing
Bought
- Nothing
Marc’s Portfolio YTD Performance
- Portfolio return: +4 % (excluding currency gain)
- S&P 500: +1.07%
- RSP ETF (S&P Equal Weight): +3.76%
- TSX: +4.52%
The portfolio is outperforming the S&P 500 by 2.93 percentage points (excluding currency gain).
Money with Marc 