Here are some helpful tips and advice on how to pick stocks without a broker

Brokers can sell their clients an array of products and services that will bring them a wide range of fees and commissions, from high to low. As a general rule, the more income a broker can earn from selling a particular investment, the poorer the match between the investment and the interests of the client.

However, you can use our Successful Investor approach instead to picks stocks without a broker. Here are some tips:

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How to pick stocks without a broker: Hang on to your good stocks 

As you know, we feel your best way to profit in the long term is to buy a portfolio of well-established stocks and make changes only when there’s good reason to do so. If you buy carefully to begin with, you may only have to replace 10% of your Successful Investor portfolio per year on average. Some years, you may not need to buy or sell anything.

How to pick stocks without a broker: Keep aggressive stocks to a small part of your portfolio

We advise you keep aggressive stocks to a small part of your portfolio. As well, see our advisory on more aggressive investing, Power Growth Investor, for our recommendations. Above all, we advise you to stay out of stock options and other highly speculative investments altogether.

How to pick stocks without a broker: Don’t focus on any single investment measure

When picking their own stocks without the help of a broker, many investors acquire the habit of focusing on stocks that have an attractive reading on a single investment measure, but that one measure may disguise problems that could make the stock a disaster-in-waiting.

These readings include a low per-share ratio of price-to-earnings, a low price-to-book-value ratio, or a high dividend yield. This seems like a quick, easy way of spotting an investment bargain.

However, most investment measures fall on a spectrum that ranges from suspiciously cheap to extraordinarily expensive.

Many disasters-in-waiting go through a low-p/e period prior to their eventual collapse. During this low-p/e period, people close to or involved with the company recognize that it has serious problems. They sell their own holdings and they tell their friends and relations to do the same.

Another common problem is that the company is cyclical and is at the top of its business cycle.

Specific reasons why a company’s profit may slump for one or more years include the expiration of a patent, new competitors, a rise in costs, adverse legal or regulatory changes, or investigations for illegal activity.

In the long run, investors make most of their profits in investments that offer both good value—but not too cheap or too expensive—and an attractive long-term outlook.

How to pick stocks without a broker: Diversify your portfolio

Your portfolio strategy should begin with a fundamental piece of Successful Investor advice that we mention frequently. Spread your money out across most if not all of the 5 main economic sectors (Finance, Utilities, Manufacturing, Resources, and the Consumer sector). The proportions should depend on your objectives and the risk you can accept. The Canadian Finance and Utilities sectors involve below-average risk. Manufacturing and Resources tend to be riskier, and the Consumer sector is in the middle.

How to pick stocks without a broker: Above all, buy high-quality stocks

One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

Value stocks are stocks trading lower than their financial fundamentals suggest. They are perceived as undervalued, and have the potential to rise. They have low price-to-earnings and price-to-book ratios—which is why they’re less expensive than growth stocks. Due to this fundamental distinction, a value stock is often traded at a more affordable price than a growth stock.

How to pick stocks without a broker: Avoid frequent trading

One important question we frequently get from investors is: How often should they sell investments they own and buy new ones? Our answer never varies. Do it as rarely as possible. That’s because turnover in your portfolio cuts into your profits.

When it comes to adding value to your investing efforts, one of the least productive things you can do is to try to “time” the market. By that, we mean attempting to sell good stocks at what looks to you like a price peak, in hopes of buying them back later at lower prices.

As a rule, be slow to sell high-quality stocks, and quick to sell low-quality stocks. That’s because high-quality stocks make better long-term investments. They tend to recover faster from a setback, and are more likely to go on to new peaks.

Have you ever worked with a broker? Did it lead you to investing on your own?

What tips can you share for investors who plan to pick stocks without using a broker?