Visit the business section of any decent library. You'll find shelves full of books on how to pick stocks. I've read most of them over the last thirty years and some are pretty good. Most are not. It isn't easy, but sorting the good stuff from the not-so-good stuff is absolutely necessary. Anyone who has read John Rothchild's book "A Fool and His Money, " knows what I mean.

The biggest obstacle to finding a winning stock picking system is that no system works all the time. Even the great Peter Lynch picked bummers once in a while. Nevertheless, there are some simple, common sense rules that can improve anyone's stock picking skills regardless of the system they use. Here they are:

Rule I: Favor Undervalued Stocks. The first step in picking stocks is to favor stocks of companies that are making money, lots of money. Study stocks of companies with rapidly growing earnings and choose stocks of companies which consistently make more money than they did the year before.



The question of price arises even if you do the above. Profitable, high growth stocks usually sell at very high prices. How high of a price is too high? The only way to answer this question is to know what a stock is really worth.

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