Establish Your Game Plan

By yourself you can't possibly sort through the thousands of stock issues traded on the various exchanges and over the counter, searching for a few good prospects to buy.

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.

Sifting through their leads will be easier if you first take the time to decide on an overall investment approach. Then you can see how suggested stocks might fit into it. The next step is setting up a regular schedule of investing, and sticking with it no matter which direction the market moves.

The following investment approaches aren't mutually exclusive. Many successful investing plans contain elements of each. Balance is the key.

Buying and holding

Investors in this category hold their stocks for a long time -- five or ten years or more. They sit tight during market declines (or use them as opportunities to buy more stocks at lower prices), confident that the inherent strength of their companies will reward them with higher earnings, dividends and prices.

If you're essentially a conservative buy-and-hold type (and for most people this is the most sensible attitude), look for blue chips -- big companies with consistently high earnings and a record of increasing dividends.

Counting on diversity

How many stocks does it take to diversify enough? 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. This can create whole new industries seemingly overnight -- managed health care and computer software, for example.