How to Create Your Own Successful Stock Portfolio

By S Mcleod
Is your mutual fund not providing the type of performance you are looking for? You are not alone. According to statics over a 10 year period from April 30th, 1995 to April 30th, 2005 78.6% of active mutual fund managers failed to beat the S&P 500? That means that if you invested in mutual funds during this time period your fund had only a 20% chance of outperforming the S&P 500. These managers are supposed to be the so called experts in the stock market, yet they can't even beat the performance of an index that measures general marketing conditions?
There is an age old saying, if you want something done right do it yourself and this saying certainly applies to the stock market. With just a little research in your spare time, you can create your own portfolio that can trounce the pathetic performance of these mutual funds and grow your money at a rate you would be proud of.
As of May 30th, 2007, the S&P 500 over a 5 year period is up over 42%. That is an average growth rate of 8.4% a year. If you can create a portfolio that can exceed 8.4% a year yourself, you will not only be outperforming the S&P 500, but you will also be outperforming most of the mutual fund managers. So how do you build your own portfolio so you can fire your mutual fund? Here are some tips:
Tip #1 - Don't fight the indexes. The three general indexes that measure market performance are the Dow Jones Industrial average, the Standard & Poor 500 Index and the NASDAQ composite index. Take a look at a one year chart for these indexes. What direction is the chart moving? If the indexes are downward, monitor your current positions carefully, sell and take profits when appropriate and don't buy into any new positions until the general market is headed back up. Three out of every four stocks follow the general market trend. Trying to find winners in a downward market is like trying to swim upstream. It can be done, but the odds are against you.
Tip #2 - Change is essential. The best performing stocks perform well because there is a change that takes place that causes the increase in price. For instance, Apple's stock is up over 50% from one year ago. What change took place almost a year ago that is driving such a large increase in stock value? Look for a change in products, a change in financial performance, a change in management or a change in the industry.
Tip #3 - Show me the money. How the company is performing financially is one of the key fundamentals to driving stock price. If the company is consistently growing sales revenues, net profits and corporate earnings at a high rate quarterly and annually, that is a clear sign that you may have a winner on your hands.
So make sure you consider these three tips if you want to build a portfolio that will make your mutual fund manager jealous. Doing so will allow you to be able to fire your mutual fund!
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