American Pickers is a pretty cool History Channel reality show that follows antique and collectible pickers Mike Wolfe and Frank Fritz as they travel the country exploring people’s homes, barns, sheds, backyards, and just about any other places that “rusty gold” can be found. It’s kind of fun watching them dig through old boxes that probably haven’t been opened in years, or finding a hidden treasure underneath some old rat-infested tarp. I enjoy seeing them give new life to a piece of Americana and the joy it brings to the new owner. But I’m really amazed at the serious cash they make from their enterprise. One man’s trash is truly another man’s treasure.
So, since all three of the major indices are at all-time highs, let’s pull our cargo van up to the corner of 4th and Wall in Lower Manhattan and have our own version of American Pickers. Let’s call it American Stock Pickers.
The first thing you’ll notice when you walk into the stock shed is the overwhelming number of stocks to pick from. At last count there are around 19,000 publicly traded companies here in the U.S., or about the number of menu items at The Cheesecake Factory. So, just like Mike and Frank, who quickly move past all the real junk, let’s skip over the 15,000 small companies that trade over the counter (not on any of the major exchanges). Now we’re down to just under 4,000 stocks to select from, around 3,800 to be more exact.
Turn your eyes away from the 300 companies that have come to the public markets in just the past year (IPOs). Infant stocks are volatile stocks, and during a bull market you don’t need any of their public tantrums they can tend to throw in their first year. Best let them grow up some.
Down to 3,500.
Next, eliminate all 300 of the stocks that trade under $5. The average stock comes to the market priced in the $12 to $20 range. There are probably plenty of good reasons a stock has been cut in at least half since it’s IPO, but you don’t want to pay to find out. Eliminate these, and we are at 3,200 stocks.
If you plan on holding a stock for at least a year, you should get paid for owning it.
So eliminate stocks that don’t pay decent dividends. With a couple of clicks you can find out if your little knickknack pays and how much. I use 2.5% annual yield as my line in the sand. I want the companies I pick to at least keep up with inflation. But placing this requirement eliminates a whopping 2,800 stocks and reduces the number of pick worthy stocks to around 400.
19,000 to 400 in a couple of minutes. At first glance that may look discouraging, but after 25 years in the business let me assure you it’s actually encouraging. When you can learn to train your eyes like Mike and Frank to look past the 18,600 pieces of junk that clutter the Wall Street barn, you will find it much easier to find your gems hiding in plain sight.
Finally, eliminate stocks that are not trending higher. Right now, as the U.S. stock market is sitting at all-time highs, why would you feel compelled to buy something that is going the opposite direction? Swimming upstream is exhausting and just not fun. The past month the metal and mining stocks have been heading south, along with utilities, REITs, and some of the FAANG stocks that were so cherished just months ago. Move your eyes to sectors that are looking pretty, like the financials, tech, bio-techs, transports, and yes, finally the energy companies. By eliminating the stocks that aren’t participating in the bull market, you will be at a very manageable number of around 250 stocks to pick over.
As I’m writing this I have two full pages of stocks that have caught my eye. That’s more than I’ve had in months. Now I’m working the owners, negotiating the best prices, hoping to walk out with several bargains. Just drop a line and I’ll be glad to share a few of my gems.
Just remember that whatever hidden treasure you buy to set stop losses just in case you’re wrong, because at times we all pick the wrong item, even in a stock pickers’ market.
So all you pickers out there, get on your old jeans and a good pair of gloves, and happy stock picking.
Sign up for our Good Life Newsletter to read news stories like this before they are published to the public. We’re making the stock market easier to understand with new articles every month.