Stock selection criterion

With stock picking (in German also target purchase) investing in individual stocks is called.

By selectively investing in shares of a company, of a particular market or sector an above average return is expected. Stock Picking is usually operated as part of value investing.

Objectives

A distinction must be short-term ( short) and medium-to long -term (long) goals. These targets may be part of an overall strategy for the portfolio management, but also relate to individual assets.

An example is the stop-loss tactics. The investor or portfolio manager waived initially partly due to the reduction in risk of a diversified portfolio. Topics can be about the carrying of dividends or share price increases due to other factors.

Criticism

The stock picking basically contradicts the portfolio theory, which states that risk-adjusted by the selection of individual stocks no excess return can be achieved.

In a study by Tweedy, Brown Company LLC were comparative calculations between a portfolio that is based on the NYSE index, and another portfolio which shares valued contains the 20 % lowest, conducted over a four-year period. The portfolio, which is composed of the stocks with low valuations, was compared to the market index an average annual return of 8.91 %, which represents a cumulative multi - yield of around 40 % over four years.