Stock Picks For the Long Term: Everything You Need To Know!
Are you looking for long term stock picks to help you find an easy and low-cost way to try and beat the market? Then you’ve come to the right spot!
Because in this detailed article, I’m going to show you how you can start using some of the best free online trading tools today to help you get started finding stocks to buy for the longer term.
Whether you’re saving for retirement, a big purchase, or just squirrelling something away for a rainy day, long term stock picks might be able to help you.
Before we get into the specific steps I follow to find these trade ideas, Let me show you why they’re worth your attention…
Why Pick Stocks for the Long Term?
As a stock trading blogger, a lot of people ask me about day trading, swing trading and other short term market strategies. But at the end of the day, it’s the long-term stock picks that have really moved the needle for me.
The reasons are…
(1) You can ride BIG trends when you buy stocks for the long term. By holding on for months, quarters and even years on end, you can really maximize your upside exposure. On the other hand, if you’re selling at the end of every trading day it’s much harder to make market momentum work for you.
(2) Picking stocks for the long term helps you lower your commissions compared to shorter timeframe trading. And this can really add up! Plus it reduces the risk of mistakes by over trading.
(3) Long term stock picks save you more than commission costs! That’s because I think you’ll find a longer holding period is easier and saves you time. Because instead of babysitting your positions all day you can take more time to relax and enjoy your day.
Of course I’m just scratching at the surface here. But I hope you’re starting to see some of the benefits of long term stock picking.
By holding on for the ride, you can save time, money and increase your chance of BIG profits. What’s not to love about that?
Talking about why you should be picking stocks… and actually finding ideas to buy…. are two completely different things.
So now that you have a good feel for the benefits of long term stock picking, let’s get into the details of how you can started finding these trade ideas right now.
How To Pick Stocks for the Long Term:
The good news is, picking stocks for the long term is probably a lot easier than you think. It doesn’t have to be complicated or time consuming. But it does help to have a defined process.
That’s why in this section we’re going to talk about exactly how I look for long-term trade and investment ideas (including the 100% free online tools I use to save time).
Does that sound good to you? Okay, great. Then let’s get started.
Long-Term Stock Strategy: Prioritize Fundamentals
Before we get into the exact FinViz screen I use to start finding long term stock picks, I want talk about the thinking behind it. Because…
While I don’t always prioritize fundamental analysis, in the case of long term stock trade ideas, it really does make sense to pay heed to this piece (at least in my personal experience).
The reason is, when you’re looking for long term stocks to buy, you’re better off if operating results support the positive price trend.
To make money, you need your stock to go up in price. And over time, stock price tends to track earnings per share. So…
It stands to reason that if you’re buying stock picks for the long term, you want to focus on profitable companies.
Plus, by combining a little fundamental and technical analysis, you can start to get the best of both worlds.
Let me show you exactly what I mean though.
FinViz Screen To Find Long Term Stock Picks:
One of my favourite free online trading tools is FinViz. Their stock screener is great for finding trend following trades, and it can definitely help us find picks with long-term potential. So what do we look for?
First, I like to look for fundamental traits that indicate a profitable and healthy business. To keep it simple and cast a broad net, I look for companies with a return on equity above 15% and debt/equity below 1.
Here’s what it looks like on FinViz:
This combination helps find profitable companies that aren’t using too much leverage too juice their returns. Make sense?
Then… once we have this fundamental list… I like to hop over to the technical tab and isolate the ideas with price momentum.
Because as I said before, the only way to make money is if your stock price goes up. I think a great signal for this kind of price trend are new 52-week highs. They’re simple, easy to screen for, and will help you find tickers that are being bid up.
And to help you get started right now:
Now, you can use this as a template if you want to start looking for long-term trade ideas straight away. Of course…
You need to do your own due diligence (…and you’re welcome to add more criteria to the filter based on your preferences…) but hopefully this is a useful jumping off point.
I encourage you to boookmark the screen link in your browser so you can quickly and easily check the results each day.
There is one more step I like to take after this FinViz fishing expedition. Because while a stock screen is a good start, it’s just that: only a starting point.
So after I find some ideas, I like to pop over to MorningStar.ca and check out their fundamentals over the last 10 years.
Here’s a screenshot using AAPL as an example:
By looking for consistent top and bottom line growth, as well as steady margins and growing book value per share, we can try to find the best quality companies worth owning for the long term.
On the other hand, we want to avoid stocks with bumpy earnings results or lacklustre growth. In my experience…
Companies with inconsistent fundamental results aren’t worth owning for the long term. Hopefully this is intuitively makes sense for you!
Now if you’re more of a visual learner… or if you just want to go a bit deeper into these stock screening concepts… then check out the video below!
How To Pick Stocks for the Long Term [VIDEO]:
The rest of this article is packed with more tips, tactics and tools to help you find long term stock picks. But to make sure you really understand my approach, I made this short video you can watch to help beef up your understanding.
I hope this video helps you get a strong grasp on the details of how I like to find long term stock picks. If you’re still a bit confused about the Morningstar step, I encourage you to check out this post (including video) about how you can save time with fundamental analysis. It explains this process in even more detail.
The reason I want to mention this fundamental step is because even though picking stocks for the long term can be quite profitable, you still need to be mindful about how you go about doing this.
And a consistent approach really helps.
There’s one more thing I want to mention before we go any further. Because it’s definitely pertinent if you’re thinking about holding stocks for the long term.
Should Long Term Stock Picks Pay Dividends?
One common trait long-term investors like to see in their stock picks are dividends. More specifically, some people are attracted to companies with a long-term track record of paying and raising their dividend.
And to be clear, the dividend aristocrat list is definitely a great place to find stocks to buy for the long term. Because if you can hold onto a dividend grower for enough time, the yield on cost can end up being very impressive.
While dividends can be a great driver of long-term returns, they aren’t perfect. Because as I mentioned before, the world is always changing and even reputable dividend stalwarts may one day have to slash their distribution (just look at General Electric!)
That’s why in the case of long-term stock picks, I include dividends as a “nice to have.” They can materially impact your return profile (especially when the dividend amount grows year-after-year). But…
Just be careful not to reach too far for high yield, or let the allure of dividends blind you to other fundamental shortcomings. In summary: Dividends should be a factor for long-term investors, but they shouldn’t be the only factor.
I wrote a detailed guest post for SureDividend.com, which you can read to learn more about what to look for in dividend stocks.
Now that you have a better idea of what to look for in stocks you want to hold for a long time, I hope the next section of this article might be able to save you some money by avoiding some common errors that come with a long-term stock market strategy…
Long Term Stock Picking Mistakes To Avoid:
Even though trading and investing in stocks on a long-term time horizon has worked out well for me, that doesn’t mean it’s foolproof.
If you’re not careful, you can actually end up making some very serious mistakes that could materially hamper your net worth.
So here are some common missteps to avoid when picking stocks for the long term:
(1) Never put all your eggs in one basket (especially if you work there!) In the stock market, anything can happen. It’s just a matter of time until a stock you own experiences a once-in-a-decade move. And if you’re properly diversified, this really isn’t a big deal. But…
If all your investments are in a single company, well, you don’t have much room for error. This is especially true if you have an employee stock pool or options program. Be careful about putting too much of your investments with your employer, even for your company looks like it has a promising future. The risk of being completely wiped out is too big to ignore.
(2) Never assume past performance is a perfect prediction! While it’s easy and tempting to forecast out historical results (especially from Morningstar), you need to be realistic with your expectations. And remember, you actually don’t need to predict the market to be consistently profitable.
(3) Remember to re-evaluate and regularly monitor your ideas! Even though investing in stocks for the long term is simple, it doesn’t mean you can completely set it and forget it! That’s because the world is always changing. So ensure you have a process to periodically review your long term stock picks with a critical and objective eye. Confirmation bias can tempt us to only look for positive news so it’s important you always remain fair and balanced, even with stocks you’ve already committed to.
(4) Don’t let your style drift! If you don’t have a defined process to find, trade, and manage your stock positions, you might find yourself moving the goal posts. For example, if you bought a stock because of long term growth potential, don’t change your tune when the stock lags and you decide to become a value investor. Define your entry and exit criteria ahead of time, and then stick with them throughout the life of the trade. Make sense?
Good. Now while this is not an exhaustive list of long-term investing mistakes, it should serve as a good starting point. And the good news is…
“Just by avoiding the most expensive investing errors, you can really help improve the odds of your long-term success!”
And on that note, here are some additional trading tactics to keep in mind when considering long-term stock picks (these apply whether you consider yourself a trader or investor).
Trading Tactics For Long Term Investors:
If you’re a position trader or investor buying stocks for the long-term, there are a couple key tactics you can use to help make life easier for you. Because keep in mind…
Even though the vast majority of information online is about picking stocks, this is only ONE small part of the trade. So make sure you give some consideration to the following.
(1) Size your position properly: determining how much capital you want to risk on any trade is absolutely critical to long-term stock trading success. Risk too much and one bad losing streak will wipe you out. Risk too little and you won’t move the needle. Typically I risk 0.5% of my capital on a given trade. But if you want to play around with this a little further, check out my free position sizing worksheet.
(3) Learn when to sell: one thing nobody seems to talk about is when to sell your stocks (whether they’re winning or losing trades). But this is probably the hardest trading decision you’ll face. And without a predefined plan you risk being at the whims of your emotions. That rarely works out well.
(4) Consider stage analysis: even if you aren’t a big technical analyst I strongly encourage you to learn about stage analysis. You can read my primer here or get the full version from Stan Weinstein’s book. Either way, this simple framework can help you quickly get oriented no matter what stock you’re looking at.
(5) Realize what profits are made of: this is a bit of an extension from the last point, as stage 2 trends are what drive profits. By focusing on long-term ideas with price trending up, you can increase your odds of success and the speed at which you experience it. While a lot of traders seem to want to pick bottoms or find undervalued ideas, the simple truth is you need your stock to go up in price. So why not buy stocks that are already moving higher? Don’t make things harder for yourself, the markets will do plenty of that on their own!
By now I hope you’re getting an idea of how you can intelligently find and trade long term stock picks. But before we wrap this up there’s one more strategy I want to share with you.
One Key Strategy for Long Term Stock Market Success:
A lot of trading is focused on short-term profits and getting in and out stocks in a few days (or less!) But for me…
My results really improved once I started focusing on stocks for the longer-term. Instead of competing with high-frequency algorithms, I could zoom out and trade the bigger picture.
And in particular…
One tool that made it much easier for me to trade long term stock picks more effectively was the weekly chart. I really found this view helped smooth out the noise you see on most daily and intraday charts.
Instead, when trading weekly charts you’re left with a lot more signal, and a cleaner view of the long-term trend.
If you haven’t used weekly charts before, I encourage you to read more about this great perspective. And given the big difference this has made for me personally, I can’t help but recommend you keep an open mind.
When you combine weekly charts with stage analysis, as well as the stock screens and filtering steps above, you’ll be well on your way to effectively finding and trading stock picks for the long term.
And there you have it!
Now… as a big thank you for reading this long and detailed post… I’m more than happy to share my own long-term stock picks with you too! So…
If you’re curious, just drop your email address in the box below. Then, I’ll follow up with fresh long-term stock picks every weekend! It’s free to use and you can unsubscribe anytime.
So would you like to see my ideas?