A well-crafted watchlist is critical to smart investing: It can help you find attractive buying opportunities, and it can save you from bad decisions.
After all, an investor's biggest enemy is him or herself. We overreact to the day's news, which leads to rushed decisions driven by emotion. A watchlist can help you slow down the process, examine the risks, and essentially take a deep, money-protecting breath.
But what to put on your watchlist? Today, Fool analyst Anand Chokkavelu shares two companies that have taken up residence on his watchlist and two that he recently bought in his Rising Stars real-money portfolio after watching them for months. By the way, the Fool now offers MyWatchlist.com, your customized hub to follow the performance and Fool news and commentary about the companies you're watching.
Anand uses his watchlist almost exclusively to catch a falling price. He has a core of stocks that he loves, but that he views as overpriced. First on the list is Amazon.com
Shares of the company took a hit in late October despite a strong quarter, with net sales climbing a healthy 39%. But, as Rick Munarriz wrote, "The moment that Amazon decided to take on [its rivals] with cutthroat e-reader pricing, the pros knew that this wouldn't be an earnings growth story until the shakeout is complete." Still, the P/E is decidedly high for Anand's liking.
He would also love to see prices come down on sin stock Altria
And while such pessimism-based optimism might seem like a pipe dream, the market is famous for presenting buying opportunities. Because for every Google, which will never look cheap, there are a dozen strong companies that periodically drift into a more appealing range.
That's what happened for Anand with the first two additions to his Rising Star Portfolio: JPMorgan Chase
Additionally, both banks went on smart buying sprees during the crisis and have provisioned aggressively for bad loans.
"The combination of these factors means there's a lot of upside if the situation isn't as dire as the market is portraying," he wrote." During the financial crisis, the government has shown a great will to ensure the prosperity of 'too big to fail banks.' My bet is that however this foreclosure mess ends up, it won't be catastrophic for the big banks. The government won't let it get that far."
Meanwhile, the shares are cheap, so Anand pulled the trigger.
And that's exactly why it pays to watch. You can make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click here to start building yours, or click below to start following one of the stocks mentioned above:
Roger Friedman doesn't own shares of any companies mentioned, but they're all now on his watchlist. Amazon.com is a Motley Fool Stock Advisor pick. Google is a Motley Fool Inside Value recommendation and a Motley Fool Rule Breakers pick. The Fool owns shares of Altria Group and Google. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.