SELECTING SOLID STOCKS BRINGS GOOD RETURNS

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

In the 1960s, a Brooklyn couple, Donald and Mildred Othmer, invested $50,000 in the stock market on the advice of a trusted friend. When the Othmers died during the 1990s, they left an estate worth $800 million, thanks to the advice of their friend, Warren Buffett.

Of course, not all of us are fortunate enough to have a Wall Street legend such as Buffett within our circle of friends and acquaintances. Most investors, however, do have the same opportunity to choose good stocks in a market that has historically rewarded investors with excellent returns. Buffett's approach is available to you: Buy value at reasonable prices, then wait for it to mature.

But how to do you select top stocks? Here are several suggestions.

First, look for successful companies that are long-standing industry leaders. These businesses typically have thrived during many market cycles and have proven to be pre-eminent performers.

Second, check the consistency of the company's present and past earnings. A 10-year history of rising earnings is usually a good indication of stability.

Third, buy only those companies with wise management capable of industry leadership. Strong management is the basis of corporate success. Read annual reports from several years. Look for evidence of solid business planning. Were goals met from year to year? How successful is the company in developing and introducing new products and sustaining old ones?

Fourth, a company must be financially sound. Once again, review the annual report. Check for a strong balance sheet and reasonable long-term debt. If you are unsure of what to look for, an investment professional can help you apply several simple tests to determine a company's financial stability.

Finally, choose companies from diverse industries to minimize the impact of a downturn in any single sector. This is most easily achieved by investing in a broad-based mutual fund with a history of excellent management and growth.

Does all of this research require some work? You bet. But it's well worth the investment in time.

You don't need to hope for your own personal Warren Buffett. All that's required is a little initiative and some professional advice to help you achieve your financial goals.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.