How to Build Your Stock Watch List

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Every now and then, you probably hear about an exciting company that piques your interest. Perhaps you jot down its name on a scrap of paper ... but that scrap eventually gets lost, like all the others you've scribbled on. And ultimately, you do nothing.

That's a common, but clearly ineffective, way to keep track of companies that interest you. To make the most of your money, you'll need a better system. A watch list can help you track stocks that catch your eye and keep all of your potential picks in one easy-to-follow place.

Your watch list can also help you catch stocks you favor when their prices head south, so that you can grab a better chance to buy them on the cheap. It can also help you figure out why those prices dropped, which can be a crucial distinction. A short-term, solvable problem -- like Johnson & Johnson's (NYSE: JNJ) Tylenol crisis of the '80s, or USG (NYSE: USG) during its bankruptcy reorganziation -- often presents a much better buying opportunity than a share plunge tied to long-term problems that could hurt a company's future prospects.

Set up a watch list online
Plenty of services online let you track mock (or real) portfolios, including AOL, Yahoo! Finance, and our own Motley Fool CAPS. In my virtual holdings, whenever I add a company, I pretend I've bought one share at the stock's going price that day. I can then see how much the stock has risen or fallen in value since I first noticed it. Any stock that caught my eye in the first place will likely look even more appealing if its price drops by, say, 20%.

At present, my list shows that FedEx (NYSE: FDX) has fallen some 21% since I first added it; International Game Technology (NYSE: IGT) is down 50%; and Hasbro (NYSE: HAS) is up 29%. Whole Foods (Nasdaq: WFMI) is off more than 70%! When I have a chance, I can more closely examine these companies to see whether they look like bargains.

A helpful twist
If you're willing to put in a little more work, you can make your watch list even more effective. Suppose you're interested in Amgen (Nasdaq: AMGN), which trades around $60 a share as I type this. You think it's worth about $70 per share, and you'd be interested in buying it if it fell to $50.

Instead of adding Amgen to your mock portfolio at its current price, add it at the lower, ideal price you've calculated. If your portfolio subsequently shows that your position in Amgen has fallen into the red -- that shares have dropped below your preferred $50 price -- you'll know it's time to take a closer look and consider buying.

And if maintaining your own watch list is too much work, why not let a savvy Fool make recommendations instead? Check out our Motley Fool Inside Value newsletter service, which zeroes in on the best stocks in Wall Street's bargain bin. A free trial will give you access to all past issues and all recommendations.