Buying Just the Right Stock

The worst enemy of sound investing is emotion. When the stock market is soaring--whether it's 1999 or the middle of 2003--it's tough to resist the temptation to jump on the bandwagon and buy what's hot. Who wants to get left behind?

To guard against the emotional sway of the crowd, savvy investors build up a mental database of companies they know really well. By reading the annual reports, studying the financials, and learning what drives the stock up and down, you can become an expert on any company. Once you limit yourself to a set list of companies to invest in, you won't make the mistake of buying into the latest fad--which almost always means investing in stocks you know little about.

Periodically, we publish watch lists to help you monitor great companies. Below, I've updated five of these watch lists. To monitor the stocks or funds on any of the lists broken out below, simply: 

• Click on one of the links provided. If you haven't already registered on Morningstar.com, you'll be asked to do so. (Don't worry, it's free.)    
• Name your watch list.                 
• When the holdings pop up, click "Save Portfolio." (No need to worry about the number of shares and so on--unless you want to.)

The whole process should take about 30 seconds. Once you've saved your list, you can monitor it regularly, as well as add to it over time, building up your mental database of companies. You can also sign up for e-mail alerts that we send out whenever important changes occur--like a change in the stock star rating.

Companies with Wide Moats:Create This Watch List
Mark Sellers, who heads up our monthly newsletter Morningstar StockInvestor, has put together a list of 50 companies with clear, long-term competitive advantages. Here's a watch list comprised of companies on that list as of July 2003.  

Stocks included: Anheuser-Busch , Berkshire Hathaway , Dell Computer , eBay EBAY, First Data , IDEC Pharmaceuticals , Medtronic , Microsoft MSFT, Sallie Mae , United Parcel Service , and Wal-Mart Stores .

Berkshire Hathaway Holdings:Create This Watch List
Headed by Warren Buffett and Charlie Munger, Berkshire Hathaway embodies much of what we look for in a company: honest management, a focus on increasing business and shareholder value, and a long-term focus. Berkshire holds a portfolio of publicly traded stocks, some picked by Warren Buffett and some by Lou Simpson, who manages the investment portfolio of Geico, a Berkshire insurance subsidiary. Here's a watch list of Berkshire's more than two dozen equity holdings (as of the first quarter of 2003).

Stocks included: Coca-Cola , American Express , Gillette , Washington Post , Moody's , Wells Fargo , H&R Block , M&T Bank, , Gap , Nike , Gannett , American Standard , Sealed Air , Costco , Great Lakes Chemical , GATX , Petrochina , Dover , Torchmark , Mueller Industries , Outback Steakhouse , Dun & Bradstreet , USG , PNC Financial Services , Unico American , Wesco Financial , and Zenith National .

Hare Portfolio Holdings:Create This Watch List
In our monthly newsletterMorningstar StockInvestor, we've created two stock portfolios to put the best ideas of our analysts to work. The Hare Portfolio contains aggressive picks (fast-growing companies), whereas the Tortoise Portfolio contains more-conservative fare. This watch list contains some of the holdings in Hare Portfolio as of July 2003. If the price were right, we'd consider buying more.

Stocks included: Amgen , Paychex , Cytyc , IDEC Pharmaceuticals , and Learning Tree .

Tortoise Portfolio Holdings:Create This Watch List
Here's a list of some of the stocks in our Tortoise Portfolio as of July 2003. Again, we wouldn't necessarily be buying more at today's prices, but we'd consider adding to positions in these firms if their price was significantly lower than fair value.

Stocks included: Home Depot , Pfizer , Berkshire Hathaway , Washington Mutual , General Dynamics , Northern Trust , White Mountains Insurance , and American Express .

Free Cash Flow Giants:Create This Watch List
With all the recent accounting scandals, investors have (rightly) lost faith in reported earnings. If you want a more trustworthy measure of corporate profitability, consider free cash flow. The companies on this watch list generate massive amounts of cash for their size--making them good candidates if their stock prices tank.

Stocks included: Amgen , Campbell Soup , Clorox ,Coca-Cola , Eli Lilly , GlaxoSmithKline , Intel , International Flavors & Fragrances , Johnson & Johnson (JNJ), Medtronic , Microsoft (MSFT), New York Times (NYT), Altria  (MO), Potash Corp (POT), Schering-Plough , UST (UST), and Wrigley .

A version of this article appeared April 30, 2002.