A hot stock pick is one which, to put it simply, is supposed to make money in a short period of time. But, there are various types of stock picks for various types of investors. Day traders will rely on an entirely different type of stock pick than a long term investor. There is no shortage of stock picks, so to reduce the amount of picks to choose from, focus solely on your preferred type of investing.

Components of a Stock Pick

The best stock picks are those which are based on facts not opinions. Let's consider what the stock market is. It is basically the collective conscience of the millions of investors. When a person gives a pick which starts with "In my opinion" they are basically stating they are smarter than the market. I don't know about you, but I know I am not smarter than the collective conscience of the market.

Stock picks which are based on facts should be listened to. For example, a value investor may have done in depth analysis of a company's financials. In doing so, the investor has discovered the company has more cash per share than what the company's stock is trading at. Essentially, the stock price is trading at a discount compared to the company's cash. This causes the value investor to recommend buying shares of the company based on the discounted price, not an opinion that the stock is cheap.

By ensuring a stock pick is based on facts, not opinions, you will likely increase your success rate. To increase your chances of success even more, follow an old market adage "Make the trend your friend." This eloquently states the great market paradox: what is moving higher tends to keep moving higher, what is moving lower tends to keep moving lower. Try to avoid stock picks which go against the market's trend. History has shown three out of four stocks will follow the general market trend.