3 simple and proven methods for choosing stocks, explained step by step with everyday analogies. No complex tools or jargon required.
This 6-part series was created especially for beginners. You don't need a finance degree — we'll explain everything simply, with real-world examples. If you can compare prices at the grocery store, you can learn to invest.
How to choose the right stocks (you are here)
Estimated reading time: 20 minutes | Level: Beginner | Aussi disponible en Français
You have $20 to spend and there are 50 different fruit stands. You could buy a tiny bit from every stand (that's like buying an index fund), or you could carefully choose the 3 best stands — the ones with the freshest, ripest fruit at the best price. Stock picking is exactly that: instead of buying every company in the market, you handpick the ones you believe will grow the most.
Stock picking means choosing individual stocks (shares of companies) instead of buying an entire index (like an S&P 500 ETF that holds 500 companies at once). It takes a bit more effort, but it can be more rewarding if you follow a clear method.
Buying an index fund is a great starting point and many experts recommend it. But stock picking lets you aim higher. If the S&P 500 returns 10% per year on average, a good stock picker tries to beat that by selecting only the strongest companies. The trade-off? Some picks will underperform — that's the risk. This guide teaches you how to reduce that risk.
This guide presents 3 beginner-friendly methods, from easiest to most active, that you can follow in 15-30 minutes per week using free websites and a simple spreadsheet.
Some people love huge, terrifying roller coasters. Others prefer the gentle rides. And some are happy with something in between. Investing is the same way — your personality determines which kind of "ride" is right for you. There are no wrong answers! The important thing is to be honest with yourself.
Before choosing a method, you need to know what type of investor you are. Your profile determines which methods are best for you and how much risk you can handle.
Imagine an elephant in a china shop: it cannot move without breaking everything. Big investment funds are like that elephant. You are a mouse: you can go anywhere, quickly, without anyone noticing. That is a real advantage!
Do not think the pros always win. 80% of funds do worse than the market over 10 years. Your advantages (speed, patience, freedom) are real. To discover opportunities that the pros cannot touch, check out our Daily Scanner.
Large-Cap companies (like Apple or Microsoft) are the giant oak trees — they've been around forever, they're stable, but they grow slowly. Mid-Cap companies are trees in their prime — growing fast and already pretty strong. Small-Cap companies are young saplings — some will become giant trees, but many won't survive a storm.
Apple, Microsoft, Amazon, Google
Hims, JetBlue, Cloudflare
KULR, POET Technologies, Gorilla Tech
If you're just starting out, stick with large-cap companies. They're the safest bet. Start with big, stable companies that have decades of track record. Once you're comfortable and have gained some experience, you can explore mid-caps and small-caps.
The S&P 500 already contains the 500 biggest and most successful US companies. Instead of buying all 500, you only keep the 5-15 best performers — those with the strongest earnings, best growth, and healthiest financials. The index already filtered out weak companies for you; you're just selecting the top tier.
An index is simply a list of companies grouped together for tracking. The S&P 500 is a list of the 500 biggest US companies. The Dow Jones has just 30 of the biggest and most important. The companies in these indices are selected and reviewed regularly by a committee, so the list is always up to date.
Start with the S&P 500 (500 biggest US companies) or the Dow Jones (30 biggest US companies). These indices already filter out weak companies for you.
Check 1: Is the company's profit growing over the last 2 years? Check 2: Does it pay a dividend above 2%? Check 3: Is the company's debt reasonable (not drowning in loans)? If all 3 are yes — that's a winner!
Split your money equally between them. Check in once every 3 months (after companies report earnings) and replace any that no longer pass the 3 checks. That's it!
We looked at the 30 companies in the Dow Jones and asked our 3 questions: Are profits growing? Do they pay dividends? Is debt low? The top 5 that scored best on all three criteria were GS, NVDA, CAT, AMGN, and JPM. We didn't try to predict the future — we just followed the rules!
Result in 2025: GS (+42%), NVDA (+38%), CAT (+22%), AMGN (+18%), JPM (+15%) = +27% average vs the Dow Jones at +14%.
Time spent: About 1 hour per quarter (every 3 months) to review.
Every January 1st, rank the 30 Dow Jones stocks by their dividend yield (how much cash they pay you per year). Buy the top 10. Hold for one year. Repeat next January. This simple strategy has beaten the Dow Jones in 7 out of the last 10 years. No fancy analysis needed!
A small snowball at the top of a hill starts rolling. As it goes down, it gets bigger and faster. Stocks work the same way: a stock that has been going up for several weeks tends to keep going up for a while. Momentum investing means hopping on the snowball while it's still growing — and jumping off before it hits a wall at the bottom!
Momentum is the idea that what's been going up tends to keep going up (at least for a while). It's been proven by over 200 years of stock market data! The key is knowing when to get on the ride and when to get off. That's what the steps below teach you.
Use a free screener like Finviz.com or TradingView. Look for stocks that gained more than +15% over 3 months. Not 1 week — that's too short. Three months shows real momentum.
The 50-day average price (sometimes called "SMA 50" or "50-day moving average") is simply the average closing price over the last 50 trading days. If the stock's current price is ABOVE this line, it means the trend is still going up. If it's BELOW — the momentum might be fading, so skip it.
This is the most important rule. Before you buy, decide: "If this stock drops 8% below my purchase price, I will sell automatically." No exceptions. No hoping it'll come back. You set it up once and it protects you automatically, even when you're not watching your positions.
Imagine you buy a stock at $100. Without a safety order, if it drops to $50 (that's -50%), you'd need a +100% gain just to get back to even! But with a -8% safety order, the worst that happens is you sell at $92. The math changes completely: you only need +8.7% to recover. Protecting your money is more important than making money.
Palantir (PLTR) announced amazing results in November 2025: their revenue grew +30%. The stock price immediately jumped above its previous highest price ever (called an "all-time high"), and trading volume was 3x the normal amount. All these signs said: "This snowball is rolling fast." The price was clearly above the 50-day average price, confirming strong upward momentum.
Entry: $72 (the day after the big jump). Safety order: $66 (that's -8%).
Exit: $98 in early February 2026, when the price dropped below its 20-day average (a sign momentum was fading).
Result: +36% in 3 months.
If a stock already went up +50% or more in one month, it's probably too late. Most of the easy gains have already been captured. The best time to buy a momentum stock is early in the move (after 2-4 weeks of steady climbing), not at the end (after 2-3 months of explosive gains). Patience pays.
One day, the store puts it on sale for $120. That's a great deal! You know the bike is worth $200, so you buy it at $120 and you're happy. Value investing works the same way: you look for companies whose stock price is cheaper than what the company is actually worth. You buy "on sale" and wait for the market to realize the true value.
The P/E ratio tells you how many years of profits you're paying for. If a company earns $10 per share and the stock price is $100, the P/E is 10 (you're paying for 10 years of profits). A lower P/E usually means the stock is cheaper. If similar companies have a P/E of 20 but this one has a P/E of 10, it might be "on sale" — or there might be a good reason it's cheap! That's why Step 2 below is so important.
The Price-to-Earnings ratio (how many years of profits you're paying for) should be lower than the average for similar companies. If steel companies average a P/E of 10 but one has a P/E of 5, that could be a bargain! Use Yahoo Finance to check.
A cheap stock can be cheap for a bad reason (the company is failing!). Check these 3 things: (a) Profits are stable or growing. (b) Debt is not too high. (c) They still pay dividends. If all 3 are true, it's likely a real bargain. If not, the stock is cheap because it deserves to be — stay away!
Value investing is the slow-cooker method. It takes time for the market to notice a bargain. Warren Buffett (the most famous investor in history) sometimes waits years! For you, aim for 6 to 18 months. Don't panic if the price doesn't move right away.
ArcelorMittal (MT) is a giant steel company. The average P/E for steel companies was 9.8, but MT's P/E was only 5.2 — meaning it was almost half the price of its peers. Was it a trap? We checked: profits were stable over 3 years, debt was very low, and they were paying a nice 3.8% dividend AND buying back their own stock (a sign the company believes in itself). Conclusion: real bargain, not a trap!
Entry price: €24. Target: If the P/E returned to the industry average, the price would be €35-40.
Result so far: €32 after 8 months (+33%), still holding.
Index Picking is like bowling — simple rules, slow and steady, hard to mess up.
Momentum is like surfing — exciting, you catch waves, but you need good timing.
Value is like fishing — patient waiting for the right catch, then holding on!
| Feature | Index Picking | Momentum | Value |
|---|---|---|---|
| Difficulty | Very Easy | Medium | Medium |
| Time needed | 1 hour per quarter | 30 min per week | 1 hour per month |
| How long you hold | 6-12 months | 2-12 weeks | 6-18 months |
| Risk level | Low | Higher | Medium |
| Expected return | +10-18% per year | +15-40% per year | +10-20% per year |
| Best for | Big companies | Small & Medium | Big & Medium |
| Best profile | Conservative | Aggressive | Balanced |
Some parts of the world do better than others depending on economic conditions. The dollar, interest rates, and capital flows determine where money goes. You do not need to understand everything — here are the 3 simplest scenarios.
Why: When the dollar is strong, money from around the world flows into the US. American companies benefit the most.
Why: When the dollar weakens, money flows out of the US and into Europe, Asia, and emerging markets. That is the time to invest there.
Why: When markets have crashed hard, the most beaten-down assets tend to bounce back the fastest. The bigger the decline, the higher the recovery potential.
Even the best investors in the world made mistakes when they started. The difference is they learned from them quickly. Here are the most common traps beginners fall into, so you can avoid them from day one.
You buy a stock, and even when everything goes wrong, you refuse to sell because you "believe in it." Love is for people, not stocks!
A stock jumped +60% and everyone on social media is talking about it. You rush in at the top... and it crashes.
You invest all your money in a single stock. If it goes down 50%, you've lost half your savings.
You obsess over every tiny price change. This causes stress and leads to panic selling on small dips.
"It'll come back up" — famous last words. Without a safety order, a -20% loss can become -50% or worse.
Someone on Reddit or TikTok says "This stock will 10x!" — so you buy without doing any research.
Before buying any stock, run through 3 quick checks. If all 3 pass — you buy. If any one of them fails — you skip it and move on. This keeps your decision-making consistent and removes emotion from the process.
AI chatbots (like ChatGPT, Claude, or Perplexity) are like a friend who has read millions of books. You can ask any question about stocks, and they'll give you a clear, detailed answer. The catch? This friend sometimes has memory gaps and, rather than admitting "I don't know," will make up a convincing answer. That's why you should always double-check what it tells you.
Each chatbot has its strengths. Here's a simple guide to know which one to use.
AI might tell you "Apple's P/E ratio is 28.3" with total confidence... and be completely wrong. Always verify important numbers on Yahoo Finance, Fidelity, or Robinhood. It takes 30 seconds.
If you ask "which stock should I buy?", the AI will give you an answer... but that's the worst way to use it. It doesn't know your budget, timeline, or other investments. Instead ask: "What are the pros and cons of [TICKER]?"
AI tends to tell you what you want to hear. If it says a stock is great, then ask: "Now give me the reasons NOT to buy it". This way you get both sides of the coin.
Copy-paste these into any chatbot. They're designed to get useful, honest answers.
For example: "Apple's revenue is $383 billion."
Go to Yahoo Finance, Fidelity, or Robinhood, type the ticker and check the numbers. It's free and takes 30 seconds.
Ask the same question to another chatbot (e.g., Perplexity if you used ChatGPT). If both agree, good sign. If they contradict each other, dig deeper.
Are you Conservative, Balanced, or Aggressive? Be honest — there's no wrong answer. This determines everything else.
Don't try all three at once! Start with Index Picking if you're conservative, Value if you're balanced, or Momentum if you're aggressive. Master one before adding another.
-8% for momentum, -10 to 15% for index picking and value. This is THE rule that separates winners from losers in the long run. No exceptions.
The method matters less than the discipline. An average investor who follows their rules every single time will beat a brilliant investor who changes their mind every day. Pick a method, write down your rules on paper, and follow them no matter what. It's boring. And that's exactly why it works. The stock market rewards patience and consistency, not excitement and cleverness.
You don't need any paid subscriptions or expensive software. All the tools below are completely free. You just need a computer or phone and an internet connection!
| What You Need | Free Tool | What You Do There |
|---|---|---|
| Find stocks | Finviz.com (Screener tab) | Filter stocks by P/E ratio, price performance, industry, size |
| See price charts | TradingView.com (free tier) | See the price vs 50-day average, trading volume, trends |
| Company data | Yahoo Finance | Check P/E ratio, dividend, debt, profits, news |
| Economic calendar | Investing.com (Calendar tab) | See upcoming events: Fed meetings, earnings dates, jobs reports |
| Insider trades | OpenInsider.com | See if company executives are buying or selling their own stock |
Click each question to see the answer. 4/6 = great job, you understood the basics!
FALSE. A conservative investor focuses on large, stable companies (the "large caps" like those in the S&P 500 or Dow Jones) that pay dividends. Small, risky companies are for aggressive profiles.
An ETF is a pre-made basket of stocks that you buy all at once. An S&P 500 ETF lets you own a small piece of the 500 biggest US companies in one single purchase, without having to buy each stock individually.
Because AI chatbots can make up fake numbers while sounding completely confident. A P/E ratio, revenue figure, or profit margin — any of it could be invented. Always verify key data on Yahoo Finance or TradingView before making any decision.
FALSE. A stop-loss is essential for everyone, especially beginners. It automatically sells your stock if it drops too much (for example -8%). Without a stop-loss, a -10% loss can snowball into -30% or -50% because you keep hoping "it will come back up."
Determine your investor profile (conservative, balanced, or aggressive). Your profile determines which stocks you should be looking at and which method to use. Without a defined profile, you risk taking on risks that don't match your situation.
BAD idea — run! The S&P 500 averages ~10% per year over 100 years. Warren Buffett, the greatest investor in history, averages ~20%. If someone promises 30%+ "guaranteed," it's almost certainly a scam. In Simple Terms: if it sounds too good to be true, it is.
5-6 correct: Awesome! You've got the basics down. | 3-4: Re-read the relevant sections. | <3: No worries, take your time and re-read the article!
Come back to this glossary whenever you see a word you don't understand. Over time, these terms will become second nature. The stock market has its own language, but once you learn the basics, it's not as scary as it sounds.
A tiny piece of ownership in a company. If a company has 1,000 shares and you own 1, you own 0.1% of the company.
A list of companies grouped together for tracking. Example: the S&P 500 tracks the 500 biggest US companies. It groups stocks together so you can measure how the overall market is doing.
A basket of stocks you can buy as one unit. An S&P 500 ETF lets you buy a piece of all 500 companies at once with a single purchase.
How many years of profits you're paying for. Stock price / annual earnings per share = P/E. A P/E of 15 means "you're paying for 15 years of current profits." Lower = potentially cheaper.
Cash that a company pays to its shareholders (you!) from its profits, usually every 3 months. It's a regular income stream that rewards you for holding the stock.
The average closing price of a stock over the last 50 trading days. If the current price is above this line, the trend is generally "up." If below, the trend is "down."
The tendency of a stock that's been going up to keep going up (and vice versa). Strong momentum means the trend is accelerating, attracting more buyers.
An automatic sell order that triggers if a stock drops to a certain price. If you buy at $100 and set a stop-loss at $92, the stock automatically sells if it drops to $92. Essential for limiting losses.
The total value of all a company's shares. Stock price x number of shares = market cap. It tells you how "big" a company is. Apple's market cap is ~$3 trillion.
Size categories: Large-Cap > $10B (giant companies), Mid-Cap $2-10B (growing companies), Small-Cap < $2B (small, risky but potentially high-reward companies).
How many shares of a stock are bought and sold in a day. High volume = lots of interest. Low volume = few buyers/sellers. Volume is the "fuel" behind price moves.
The profits a company reports, usually every 3 months (quarterly). "Earnings beat" = profits were better than expected. "Earnings miss" = profits were worse than expected.
A number from 0 to 100 that shows if a stock has been bought too much (above 70 = "overbought") or sold too much (below 30 = "oversold"). Between 50-70 = healthy upward momentum.
Bull market = prices are going up (think of a bull charging upward with its horns). Bear market = prices are going down (think of a bear swiping downward with its paw). Fun way to remember!
"Don't put all your eggs in one basket." Owning stocks in different companies and industries so that if one goes down, the others can balance it out.
The panicky feeling of seeing others make money on a stock and rushing to buy without thinking. One of the biggest causes of beginner losses. Stay calm!
For Index Picking: Michael O'Higgins, "Beating the Dow" (1991) — the original dividend strategy explained simply.
For Momentum: Gary Antonacci, "Dual Momentum Investing" (2014) — evidence-based momentum with 200 years of data.
For Value: Benjamin Graham, "The Intelligent Investor" (1949) — the bible of value investing, still relevant today.
For Psychology: Daniel Kahneman, "Thinking, Fast and Slow" (2011) — understanding why our brains trick us with money.
Disclaimer: This guide is for educational purposes only. It does not constitute personalized investment advice. Past performance does not guarantee future results. Stock picking involves risk of capital loss. Please consult a licensed financial advisor before making any investment decisions. The case studies shown are educational illustrations based on historical data and do not constitute buy or sell recommendations. DailyTickers is not a registered investment advisor.