It’s all about return on investment.  We buy stock to achieve superior gains, as the long-term average return of stocks is 11.5%.  Historically stocks have been solid investments.  Purchasing shares of stock is the most direct and uncomplicated form of investing.  The challenge is buying the right stock.

With thousands of stocks to choose from you will need a strategy to trim down to a manageable list of targets.  Truth be told the less complex the strategy the easier to implement and execute.  Simple strategies do work, just ask one of the best known investors, Peter Lynch.

One of the simplest ways to find a company to invest is by knowing what you know.  If you’re a coffee person it’s likely that you have visited a Starbucks (SBUX) to enjoy a freshly brewed cup of coffee.  You probably noticed a lot of other people visit Starbucks as well, and furthermore Starbucks has abundant locations in most cities.

Another simple strategy is to target by market capitalization (market cap).  The table below shows the respective categories:

Sizing up a Stock:

A more advanced, yet still simple screening methodology is to combine several criteria factors together.   By combining variables such as Mid-cap, stock price greater than $20 and earnings per share (EPS) greater than 10% a manageable list of potential targets companies can be created very quickly.  Additional variables can be added to further narrow the list.

Generally for stocks, the higher the market cap the safer or less risky the company will be.  However, there are always exceptions – anyone remember Enron?