What approach to stock picking is described?

• A. Look at future opportunities
• B. Focus on past performance
• C. Rumors
• D. Focus on mutual funds

Answer: (A)

Forward-looking stock picking concentrates on what a company can achieve in the future—the growth opportunities, innovation, competitive position, and how management plans to allocate capital. By weighing these future catalysts, you estimate the intrinsic value based on expected cash flows and growth, and then compare that to the current price to assess upside. This approach aligns with how markets price stocks—on expected future performance—so it tends to identify opportunities where the stock’s price already reflects strong potential or where there is room for meaningful growth.

Focusing on past performance can mislead because a company’s recent results don’t guarantee future gains and can be affected by one-off events. Relying on rumors is speculative noise and can lead to biased or unfounded decisions. Focusing on mutual funds shifts the exercise from selecting individual stocks to choosing a fund, which isn’t the same as stock picking.