Once in a while you may come across an interesting company through business or personal contacts. For the most part, though, you have to look for investment prospects among the recommendations of the brokerage firms and financial publications. Then you can see how suggested stocks might fit into it. The following approaches aren't mutually exclusive. Many successful investing plans contain elements of each.
Balance is the key.
Counting on diversity J. Russell Holmes, who delved into stock returns produced over a 107-year period, concluded that one of the three keys to succeeding in the market was to think in terms of portfolios, not individual issues. That depends on several factors. One study indicates that you need a minimum of ten separate issues if you're dealing with high-quality companies. Another way to spread the risk would be to buy just a few individual stocks and buffer them with shares in mutual funds , or to stick with mutual funds exclusively because their portfolios usually hold no fewer than several dozen issues. Betting on one industry Certain industries grab the headlines from time to time because of economic or social trends, technological developments or marketing innovations.