Last week, I listed several reasons why one might want to own funds instead of stocks. Generally speaking, those reasons are exceptions to this general rule: If you are willing to invest the time it takes to learn how to pick stocks, and to manage your own portfolio, you have an excellent chance of outperforming the market and most mutual funds over time.

The case for buying stocks has been made over and over here at the Fool, so I won't rehash it in detail. Simply put, savvy individual investors have a few advantages over Wall Street, and if you take the time to learn how to exploit them, you stand a good chance of outperforming most of the people who are paid to manage money for a living. But for many investors who have no experience holding stocks directly, or who got discouraged after losing money following the dot-com boom, investing in stocks starts with a simple but daunting question: How do I know what to buy?

Learning to pick stocks
First of all, don't be intimidated by dire warnings from your brother-in-law the broker or by those Wall Street pundits who say that "individual investors shouldn't own stocks." It's just hogwash, plain and simple. Most of the people who make statements like that have some long story about a guy who lost everything because he put his life savings into the IPO or something similar, and I don't doubt that there are people like that out there. But we're not going to join them. Warren Buffett has long maintained that any reasonably bright person can learn to pick stocks well, and thousands of satisfied Fools agree. Here's how to get rolling as a stock investor:

  • Read, read, read. Get a few good books and learn how the markets work and the basics of stock picking. I suggest you start with The Motley Fool Investment Guide by founding Fools David and Tom Gardner, One Up on Wall Street by Peter Lynch, and The Little Book That Beats the Market by Joel Greenblatt, but there are other good books out there as well. (If you need a really basic starting point, the Greenblatt book is the one. It's a masterpiece, and super-easy to understand.) Whatever you choose should explain the basics of fundamental analysis, emphasize the importance of research and of sticking to stocks you understand, and offer good and bad historical examples to help you understand how investment decisions play out in practice.
  • Talk with more experienced investors. Find some savvy stock-pickers to talk to -- either among your friends or here on the Fool's message boards. Ask them how they find good stocks, and about their evaluation process. Bounce your ideas off of them. Ask them about their past mistakes, and learn from them. Learn the tricks of long-term success, like how to develop the discipline to hold through volatility. Books are great for giving you the concepts and the language of stock investing, but real wisdom often comes from the questions you can't ask a book.
  • Follow stocks that seem promising. Using your newfound knowledge and wisdom, pick a few companies to follow. You can work from lists of promising stocks generated via a stock screener or found on the Fool's CAPS center, or you can simply pick a few companies you like and admire. Love your new Prius? Check out Toyota (NYSE:TM). Need a grande mocha latte every morning? Lots of investors love Starbucks (NASDAQ:SBUX), especially as a long-term holding. Just got back from vacation? Read up on Southwest Airlines (NYSE:LUV). This doesn't always work -- loving your new Mustang doesn't mitigate Ford's (NYSE:F) chronic corporate difficulties, for example -- but even the exercise of researching Ford will add to your storehouse of knowledge and wisdom.
  • Consider a newsletter subscription. Yeah, I know: I've been telling you how to pick stocks, and now I'm telling you to hire someone else to make picks for you. But hear me out. A good newsletter writer doesn't just make picks -- he or she explains them in great detail, lays out the case, and reviews all of the factors that led to the choice. Those reviews can be an incredible education for the aspiring stock picker, as they give you key insights into a successful stock picker's thinking. A really good newsletter service can also offer you ideas for improving your own stock picking, as well as a way to offer feedback and ask questions of the writers. The Motley Fool's Stock Advisor newsletter service, led by founding Fools David and Tom Gardner, offers all of these things backed by an impressive track record. Past picks such as (NASDAQ:PCLN), UnitedHealth Group (NYSE:UNH), and Garmin (NASDAQ:GRMN) have all more than doubled since first being identified by the Gardners and their team, and they aren't the only ones. Overall, Stock Advisor is outperforming the market by over 37% since inception. The cost is trivial compared to the gains that are available, and the cost of a trial is even more trivial -- you can have a free pass that gives you full access to the current issue, all of the archives, and the special members-only discussion board just by clicking here -- it's good for 30 days.

Fool contributor John Rosevear does not own any of the stocks mentioned in this article., UnitedHealth Group, and Garmin are Stock Advisor selections. The Motley Fool has a disclosure policy.