Watch That Watch List

Q How should I go about creating and using a stock watch list? — M.S., Warren, Ohio A Start by jotting down the names of companies you read or hear about that seem like promising investments. You could do so on paper, but maintaining a list online is easier. You can set up an online watch list or “portfolio” full of stocks of interest at sites such as finance.yahoo.com, morningstar.com, marketwatch.com and others. You might pretend that you bought one or more shares of each at the stock price at which you first noticed the company. Meanwhile, research and follow the companies on your list and get to know them well. When you’re ready to buy, you’ll be familiar with a bunch of companies and will have a sense of which are strongest, growing most briskly and priced attractively. Monitoring your list will also help you notice when a company of interest falls in price significantly, presenting a possibly great buying opportunity. When that happens, do further research to make sure any problems it’s facing seem temporary and not protracted. *** Q What’s “window dressing,” financially speaking? — T.D., Watertown, Wisconsin A Window dressing is a not-so-great practice employed by some mutual fund managers. Since fund managers have to report regularly on their funds’ holdings and they want to impress existing and potential shareholders, some will sell poor performers and replace them with popular stocks before the reporting period ends. That will make a good impression on someone reviewing their list of holdings as of the end of the quarter. You might avoid being taken in by window dressing by favoring funds with low turnover ratios, which reflect relatively infrequent trading activity.