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Monday, November 14, 2022

How To Evaluate Stocks: Financial Expert Investing ABCs

A client asked me to recommend the best books for learning to pick stocks.  It's a common question, and I wasn't aware of any one-size-fits-all answer.

So I went to the experts during the Money Moves Conference.  It is a new effort by Tulane University professors, public radio stations and local financial institutions to bring money basics to south Louisiana community members.

The speakers included world-class financial experts who boiled down tough topics to the basics.  

Mara Baumgarten Force presented "The ABCs of Successful Money Management."  She is a Professor of Practice, Associate Faculty Director, Master of Finance Program, A.B. Freeman School of Business, Tulane University.  Mara teaches financial management, analysis, and investment courses at the undergraduate and graduate levels. 

Her experience includes managing 150+ trust professionals at JPMorgan serving 13,000 clients with more than $13 billion under management, so she should know about stock picking resources!  

During the Q&A, she responded to the stock-picking resource question with surprisingly simple responses.   

A screenshot of her "recommended resources" slide is here.  The list includes,, TD Ameritrade's YouTube channel, and The Fundamentals of Corporate Finance, 10th Edition, by Brealey, Myers & Barcus.  

Mara added these nuggets during the discussion: 

  • Anything that Warren Buffet has written or said, i.e., 
    • "Being greedy when people are scared and being scared when people are greedy." 
    • "Buy stocks in companies you know." 
  • A Random Walk Down Wall Street (book)
  • The Intelligent Investor (book, old style of writing, but classic and good information). 

Reducing Risks with Research 

Mara described two levels of research for evaluating stocks.  It doesn't eliminate all risks though, so she recommended buyers be realistic about the highs and lows of stock portfolios.

Macro Level Basics: 

  • what does the company make? 
  • do people like buying it?
  • is there any other company that makes something similar? 
  • can they grow their business so that having an ownership interest in this company is worth more? 
"You want to find a company that you think will make money, has a good product, that you think will eventually grow," Mara said.   

"Warren Buffet picks companies that he knows where he feels comfortable with his products, like Dairy Queen," she added.  "Also, he lives in Nebraska, and there is a "world's largest" type jewelry store in Nebraska, and he bought it."  Mara pointed out that Buffet buys the things he knows and sees in his life. 

Micro Level example

To illustrate, Mara referenced a colleague's class and how they conducted research focused on an individual company - a children's sippy cup manufacturer. 

"They gathered data, they did forecasting," she said.  For example, to forecast demand they investigated birthrates - what are those going to be?  And what did they think birthrates would be for different levels of socioeconomic spending so they could forecast how much someone might be willing to spend on sippy cups? 

She mentioned how the group even investigated where all the sippy cup component pieces come from which fed the net income analysis for the company.  

 "Then they went to the CEO to present their findings and he said 'that's great!  But let me tell you something.  While you did a wonderful job with your demographic analysis, it doesn't matter how many kids, or the rate of babies being born.  It only matters how many of those are first born, because once the parents have bought the stuff once, they won't buy again." 

Lesson being "reasonable, really smart people, can do a ton of work and still not get to quite the right answer.  And there's no telling that even if they do get to the right answer, the factory doesn't get struck by lightening.  But at least you have a much better shot if you do all the research." 

Also, she reminded us all, "so when you buy mutual funds that holds 500 stocks..... even if your best idea does get struck by lightning, you have (other) best ideas.  You are never going to have a portfolio where everything goes up, always." 

It was affirming to hear someone who has overseen billions of dollars in investments reiterate the basics: 

  • Spread your risk (Mutual funds and ETFs do that for the basic investor)
  • Keep your expectations realistic (stocks go down in value as well as up, lightening can strike in a bad way)
  • Do your research  (low cost and free options are available)
  • Buy what you know and like
  • Warren Buffet is successful.  Invest like Warren.
Personally, I have very few individual stock investments.  One is employee stock purchases from my family's work in the oil industry.  The other is Microsoft.   I use their products daily and read somewhere that Microsoft was undervalued.  I bought a few shares on a whim.  

Ninety-eight percent of my equity holdings are in passively managed index funds that track the S&P 500 index or the total market.    

How do you evaluate stocks?  Do you follow tried and true or maybe take a contrarian approach?  We'd love to know in the comments! 

I'll be posting more wisdom from the conference in the coming weeks, please subscribe to get updates.  (I promise I don't sell the list and certainly don't email unless I have something interesting to share.) 


  1. thanks for the info! I've always been too intimidated to buy individual stocks (maybe unwilling to do the research?). We've got almost 60% of our "nest egg" with the state's deferred comp in a moderately conservative profile (different funds ranging from bond funds to funds that track "the markets")

    We have maybe 25-27% in IRAs that are in water and clean energy funds. This is probably more of a "values" thing than pure ROI, although they've done OK.

    We have another 15ish% in a variable annuity (IRA). Our first investment, so maybe not great in hindsight! We've taken withdrawals from this one first.

    We have a good bit of equity in our house, even with an outstanding mortgage (ugh). Maybe a bit over 300K? I wouldn't mind downsizing, but that's a team decision :) The house will likely be the kids' inheritance & a fallback option if some unforeseen huge expenses come up.

    Of course our largest financial asset is our pensions from the state. In this day and age, we're ridiculously fortunate to both have modest pensions! We "mostly" cover our monthly expenses with these plus K's tiny social security check (mine will be even punier, less than $300 if I start taking it next month). We've had to tap into our nest egg a few times, but not enough to panic just yet ;)

    I've enjoyed reading snippets of other posts! putting info like this down on the screen helps me as well (even though it's mostly off topic to this post!)

  2. Thanks JB! It sounds like you have a tight, clear handle on everything when most people don't even want to talk about it. I do love a state pension. As annuities go, it's a good one. I wish there was a guaranteed COLA though. And that government pension offset with social security drives me batty!

    One of the best resources I've found for ongoing education is the group. Can't recommend it highly enough.
    You'll find me on there almost every other day. It's a no cost message board with thousands of financially savvy people, just some of whom retired early. I've learned more up to date info there than almost any single book resource. except perhaps Ed Slott's books on the 401k/403B/457s like the def comp accounts. His website and newsletter have offered practical advice that is worth the effort to read. Good luck to you and K! Sounds like you are in high cotton and enjoying life, as it should be.

    1. thanks for the additional info! I'll have to check these out. Somehow, I'm just seeing your reply ;)

    2. Hi JB -- try these: I'm also getting interesting information on writing covered calls and what kind of recession is coming from this guy Let me know if y ou need more info!

    3. The website is Ed Slott's main page, you can sign up for his newsletter no charge.

    4. Okay, lets try a link to youtube that works!