With thousands of stocks to choose from, narrowing your list down to an actionable number that's easy to keep track of is critical to building a successful portfolio. Do you know how to create and use great watch lists?

In this clip from The Motley Fool's Industry Focus: Healthcare podcast, Motley Fool analyst Kristine Harjes and healthcare expert Todd Campbell explain why you want to use watch lists and how they can help you invest better.

A full transcript follows the video.

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Kristine Harjes: We decided we would talk about some of our financial New Year's resolutions. We alluded to that last week too, so I'm sure nobody is shocked to hear that that's what we're talking about today. But I know you guys have been dying to hear what our financial resolutions are. Because you segued so nicely into it, Todd, I'm going to start with my own New Year's resolution, which is to create a watch list. The reason that was a good segue from what we were just talking about with breaking news and the IBB bouncing all over the place is because creating a watch list, which is basically just a list of stocks that you're watching -- I feel like my elementary school teachers would not be happy with me for defining a word using the words I'm defining, but it is an Excel document or some sort of organized written form of the stocks that you're looking at that you find interesting, and some information that you think is relevant to whether or not you would want to buy them. The purpose of it is that you're well prepared when a buying opportunity presents itself.

Todd Campbell: Right. For example, the IBB falling 4%.

Harjes: I'm sure there are individual companies within the IBB that are getting slammed much harder than that. Usually, when the IBB falls, you get some smaller clinical-stage companies that really take a dive, and some of the bigger, more established ones won't be down quite as much.

Campbell: Yeah. As everyone who tunes in week after week -- thank you very much -- to our show knows, we're not short-term investors. We like to embrace a longer-term outlook. The goal is to find what we think are great companies and watch them for an opportunity to buy them at a price that we feel comfortable buying them at.

Harjes: Exactly. For me personally, the purpose of my watch list is to force myself to be a little bit more patient. Typically, how do I do my investing, and this is a guilty confession right here, I get interested in a company, I do the research, and I'm either like, they're awesome, or they're not. If they're awesome, I'm in, I'm buying. And I think I could do a lot better if I took that information, wrote it down, and sat on it, and watched the stock for a little bit to see what changes over a short period of time, make sure the buy thesis is really sound, and maybe watch to see if its price goes down a little bit and I can enter at a more attractive price point.

Campbell: Many savvy investors embrace similar approaches. One that comes to mind is George Soros, who people probably recognized as being one of the most successful investors over the last 50 years. One of his approaches is to say, "I have an idea, I'm going to take a little bit and see how it goes, and if I'm proven right I'm going to double down on it. And if I'm proven wrong, I'm going to move on." That's the same kind of idea. You do your due diligence, do your homework, and then hold yourself to a high standard of tracking the stock, seeing whether or not the catalysts that you expect to happen start to happen, and if they do, taking action and buying. But in creating any watch list, Kristine, I think you'll probably agree with this, the first step would be know thyself. You need to know what kind of investor you are so that you can separate out the stocks into the appropriate baskets. Are you a growth investor? Are you a value investor? Are you an income investor? Are you an investor that likes logos that have frogs on them? You need to be able to know your investing style and then create and craft watch lists for each one of those pieces of your style so you don't accidentally end up overweighting value stocks if you're a growth investor, or growth stocks if you're a value investor.

Harjes: Exactly. I think it's important to have, as a column in your spreadsheet or a box in your notepad or wherever you're keeping this list, the category of investment, and say, "This is an income play." That way, when you have an opening in your portfolio for an income stock, right there, bam, you filter on it and you say, "Give me my best income choices," and you can scan through your watch list and say, "This one is rising to the top of the list, it's at the most attractive price point, my thesis is still strong," and you're in.

Campbell: Correct, exactly. You don't have to be all of one or another. You're alluding to asset allocation, figuring out what portion of your portfolio you want to be income or growth or value. And yes, absolutely, having a spreadsheet that allows you to quickly scan through and sort your top picks gives you a way bigger advantage over the everyday investor who, maybe, when the IBB is falling 4%, isn't prepared to either select a Gilead Sciences, if they're a value investor, or maybe a Kite Pharma if they're a more speculative growth investor, on a big drop like that.