Choosing high quality stocks that will generate a positive return is no easy task. No one can pick stocks that will rise in value with certainty. If they could, they would be instant billionaires, and they probably wouldn’t tell you how to do the same.

However, there are some basic fundamental guides you can make a part of your investment strategy.

1.    Don’t put all your eggs in one basket
We’ve all heard this saying at one time or another and it definitely holds true when choosing investments. You’d be a fool to bet your entire portfolio on one particular investment, unless that investment is virtually risk free like Canada Savings Bonds. These days, you don’t even need to pick and choose individual stocks because there is a wide selection of fully managed funds. Mutual funds and ETFs offer low-cost alternatives and offer varying degrees of diversification.

2.    No risk, no reward.
Risk and return are positively correlated. The more risk you take on, the higher the potential return (and loss). Your ultimate goal should be to choose investments with the lowest possible risk, for the highest potential return.

3.    Don’t choose stocks you think will rise in value. Choose stocks you think everyone else thinks will rise in value.
Now things get a bit more complicated. This is more of a theory than a practical guide, but I really like it. I first heard this from a professor of management strategy back in university. It is partially derived from game theory, for those of you familiar with economics.
Essentially, it means that as individual investors, we cannot influence prices on the stock market. For example, my order of 100 shares of XYZ will not cause an increase in price of XYZ. But a bank that buys 3 millions shares of XYZ will certainly cause a price movement. So if a particular company is making headlines and you think the insurance companies, pension funds, and banks will start snapping up their stock, you need to jump on that train and ride it home!