60 KIPLINGER’S PERSONAL FINANCE^ 03/2020IF YOU’RE A REGULAR READER OF
Kiplinger’s, chances are you know
some basics when it comes to evaluat-
ing stocks. You know that you want
to buy low, sell high and hold for the
long term, for example, and that a
low price-earnings ratio means that
a stock is relatively inexpensive. But
when it comes right down to it, out
of the thousands of stocks trading
on U.S. markets, do you really know
how to choose ones to invest in?
Probably not. But to be fair, you’re
not alone. Take it from Warren Buffett,
the Oracle of Omaha, himself: “Most
people don’t know how to pick stocks.
Most of the time I don’t know how
to pick stocks,” Buffett said in a 2019
interview. He believes that most
investors—pretty much anyone who
doesn’t research stocks for a living—
should be invested in diversified,
low-cost mutual funds.
We’re fans of a well-diversified core
portfolio of funds, too. But part of the
fun and challenge of investing is pick-
ing great stocks, and if you’re ready to
branch out, your brokerage is an excel-
lent place to start your search. “About
84% of investment research done by
our clients on any given day is directly
related to individual stock research,”
says Cory Triolo, head of digital clientexperience for Merrill Edge. “We want
to make that experience as seamless
and intuitive as possible.” Merrill isn’t
alone in this regard. Lowering fees
and commissions isn’t the only incen-
tive brokers are using to lure customer
dollars. They’re beefing up investor
tools and research offerings, too.Where to start? To funnel thousands
of stocks down to a handful, investors
first much establish a “circle of compe-
tence,” says Morningstar investment
analyst Joshua Aguilar. “It’s incum-
bent on investors to familiarize them-
selves with certain areas of the market.
These need to be businesses that you
understand and can see where they
might be headed,” he says. That doesn’t
mean you need to have worked in medi-
cine to buy a health care stock, or that
only bankers should look at financial
firms. But you should understand the
dynamics of an industry—the over-
arching factors, such as interest rate
movements, inf lation or energy prices
that could affect business, as well as
the internal profit drivers for select
companies.
Several brokers offer some type of
“thematic investing” tool that provides
lists of stocks, sorted by themes, that
are drawing investor interest. For ex-ample, Fidelity’s lists include familiar
investing themes, such as pharmaceu-
tical producers, as well as newfangled
areas, such as big data, cloud comput-
ing and natural foods.
Clients of Charles Schwab, Merrill
Edge and WellsTrade have access to
lists of stock picks curated by those
firms’ affiliated advisers. Merrill
Edge’s U.S. 1 and Endeavor lists, for
example, are based on the advice of
Bank of America Merrill Lynch ana-
lysts and investment strategists.Narrowing things down. Once you’ve
targeted a universe of investments to
consider, it’s time to take your broker’s
stock screener for a spin. No two
screeners look the same, but they all
function more or less the same way:
Users select from lists of stock charac-
teristics, indicating whether they’dPicking Stocks?
Your Brokerage
Can Help
Online brokers have beefed up investor tools and research.
BY RYAN ERMEYFUNDAMENTALS