This Characteristic Will Help Investors Pick Winning Stocks

Every DIY investor needs a checklist for their stock picks; this is one of the most important tools to have if they want to beat the market

Nov. 25, 2021

So, you have your eye on a couple of stocks, maybe you’ve built up a good watchlist now, or maybe you already have a portfolio of investments. 

Whether you’ve started your investing journey or not, it’s always important to ask yourself why you’re investing in a particular stock. An important factor to always watch out for is one of two things: monopolistic power, or a competitive advantage.

Competitive advantages

So what is it? In essence, it’s what makes a company different than everyone else. In most cases, it’s why a business goes from a garage band pipe-dream (think of Apple) to a multi-billion dollar success.

Some competitive advantages are obvious, but it isn’t always clear. So, let’s think about the world’s largest companies to get a better picture:

  • Coca-Cola has its brand strength
  • Walmart is a low-cost leader
  • Meta Platforms (formerly Facebook) has a network advantage
  • Tesla has a first-mover advantage
  • Nvidia has unique technological capabilities
  • Google has more data than any other company
  • Airbnb has a visionary CEO, Brian Chesky
  • Berkshire Hathaway has an expertise advantage through Warren Buffett and Charlie Munger

Some of these companies may have a combination of advantages that gives them a leg up on the competition. But in almost every case, there’s something distinct that has contributed to their success over time.

Five questions to ask yourself

Take a minute and look at your portfolio or your watchlist. There are probably a few companies that stand out, hopefully. Maybe it was a good investment decision, maybe it wasn’t, or maybe it just hasn’t been given enough time to play out yet.

But can you sum up why you invested in one sentence — why is this stock, above all others, going to outperform its peers and (hopefully) the S&P 500?

Some things you can ask yourself:

  • What is this company the best at?
  • Could another company come along and do the same thing — can it be replicated?
  • What makes this company special?
  • Would I buy from this company over another similar company, and why?
  • Is it an innovative product or service — is it creating its own market?

Building a framework for your stock picks creates conviction and confidence in your own picks is what sets aside great investors as you can evaluate your picks time and time again, remain unbiased, and make better decisions as you learn. Remember, it’s good to be critical — that’s where exceptional returns come from!

MyWallSt Academy

At MyWallSt, there are five key traits above all else that we look for in a company’s competitive advantage. We cover this in-depth with an entire module dedicated to the subject in our new launch of MyWallSt Academy, an intensive 2-week course for DIY investors.

It will provide you with the tools and knowledge to research and pick great stocks that can outperform the market, using the strategies embodied by our Chief Investment Officer, Emmet Savage.

If you’re looking to enroll, you can sign-up for our next course here, and if you have any queries before you take the leap, shoot us an email at [email protected].