David Sterman

There is intelligence and then there is wisdom. We are all born with intelligence, but we pick up wisdom along the way. I'm no more intelligent than when I got into this business 20 years ago, but hopefully, much wiser. The key evolution: I now develop far fewer mistaken assumptions about the stocks and industries I analyze. With this in mind, here are five things I learned in 2011 that will (presumably) make me wiser in the years to come...

1. Industry selection is far more important than stock selection
I spent too much time this year focusing on the best play in a particular industry. For example, I suggested Delta (NYSE: DAL) was the best airline stock to own for the coming year.

Yet the whole group really moves in tandem, and it would have been far wiser to suggest the right entry point for the group, and not the stock. Indeed Delta and the AMEX Airline index (XAL) have traded in virtual lockstep since that late July recommendation.

Of course, my expectation that AMR (NYSE: AMR) would run into financial distress highlights the value of assessing company-specific drivers -- especially on the short-side. But most of the time, there's more value in a top-down call on the right industry than the bottom-up call on the right stock.

David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com