5 Must-Haves for Picking Winning Stocks

Shah Gilani|November 3, 2023

A Note From Amanda: As we told you on Wednesday… Manward’s doing something HUGE. We’re so pleased to introduce Shah Gilani – a true investing giant – as our first-ever Chief Investment Strategist. Join us in welcoming him to Manward… and let us know what questions you have for him… with a note to mailbag@manwardpress.com.

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I’ve been in the trading and investing business for over 40 years – as a market maker, a megabank derivative hedging and trading specialist, and a hedge fund manager.

In all that time, I’ve learned a few things about buying stocks (too many to even list on all the pages of a legal pad).

But there are really only five things that matter… five characteristics that have to be present for me to buy a stock.

And it doesn’t matter whether I’m buying a stock for a trade or as an investment for the long term.

These five things always apply.

And once you understand what they are… you’ll be able to use them to help you more consistently pick winning investments and trades.

Five Must-Haves

Here are my must-haves when looking at a stock…

1. The company must have products or services that can fill a huge addressable market, and it must be the best or among the best at what it does… or be a disrupter on its way to changing the space.
2. Revenue, profit margins and profits – what analysts call “earnings,” in sum – matter.
3. Capital structure matters a lot more than most people think, because it gives critical clues to a company’s prospects.
4. Intrinsic value, which is an assessment of a company or its stock in terms of traders’ and investors’ perception of the company and its prospects, is important. Narratives relating to the company and behavioral investing factors that stem from an assessment of intrinsic value (as opposed to market value) are akin to a secret sauce that, if present (or better yet, persistent), can catapult a stock.
5. The picture of investor psychology manifested through price action and captured in charts has to be corroborative.

Now, investors looking to buy and hold for the long term should look for these characteristics… in this order.

It’s how any Wall Street analyst or banker would look at a company and its stock… from the ground up.

Of course, not everyone buys stocks as investments. Especially in markets as volatile as these, maintaining a trader’s mindset is crucial to building and keeping wealth.

In fact, my No. 1 rule of investing is… every investment starts as a trade.

I started my career as a trader, and I’m still a trader. However, my most profitable trades became investments. They kept going up… but I didn’t sell them for short-term gains. Some went up 5,000%… some 10,000%… some more.

But they all started as trades.

So traders still need to know the five same must-haves above… but should look for them in a different order.

Spoiler alert: The order becomes 5,4,2,1,3.

Order Matters

The first thing I look at when I’m thinking about trading a stock is what the charts look like (5).

Because the trend is always your friend, I like buying stocks that are going up. So I look at a one-year chart. I want to see if the stock is moving up or has started moving up after some consolidation… maybe after falling for some period.

Of course, there’s more to technical analysis than just looking at a chart to see if a stock’s going up or is bottoming. But for starters, a rising stock is a good one to buy.

The second criterion I want to see when I’m putting on a trade is popping intrinsic value (4).

Stocks move on narratives, on crowd psychology, on news, on perception. That’s powerful stuff, especially over the short term. That’s the most important time to be on the right side of the action when you’re trading.

After intrinsic value, you want to have positive earnings prospects (2). That might take the form of analyst upgrades, company announcements or positive forward guidance.

Of course, what the company does is always important (1). I look to see if it’s expanding into a huge addressable market that will bolster its future earnings and profitability and backstop the stock price.

Lastly, when I put on a trade, I look at the company’s capital structure (3), especially its debt. If it pays a dividend, I check what the balance sheet looks like in terms of the cost of the dividend and how sustainable it is. If debt is high but debt-to-equity is reasonable relative to capital expenditures, I don’t need to worry about much else.

Whether you’re trading or investing… always check the box on each of these five must-haves before you ever buy any stock.

And if you have a stock you’d like me to run through these factors… send me a note at mailbag@manwardpress.com.