In my view, stock picking for the great majority of long term investors is a waste of time. The majority of actively managed funds have underperformed their benchmark over time and investors would have been better off holding cheap index tracking funds.
Additionally, investors might want to look at applying a mechanical system to index trackers. Research indicates that an investor may be able to achieve better risk adjusted returns than can be achieved using a buy-and-hold approach by applying a simple long-term trend following system to index tracking funds.
In my view, simple trend following systems can work and certainly a systematic momentum approach to investment has been successfully demonstrated by the track records of fund managers who have achieved success in this way over the years. An investor can gain insight into the mechanical approach to investing by conducting back-testing using relatively cheap purpose built software. Curve fitting and fooling oneself are the big dangers in back testing as well as unrealistic assumptions on a myriad of matters including the frictional costs of trading. The greatest unknown in trend following is whether your strategy can survive the noise and the chop so that it can eventually benefit from the re-emergence of "clean" long term trends. Systems have to adapt and the investor must be aware of this. But simple long term systems which follow broad economic trends probably need less adapting over the long term than shorter term systems.
Diversification is essential to success, and thanks to ETFs even the smallest investor can spread himself over many different stock markets throughout the world and into alternative asset classes like commodities, currencies and bonds. Diversification over different and low correlated investments can reduce the volatility and risk of an investment program.
If you want to engage in shorting or leveraged investments then you should look at the futures markets but that requires a great deal more expertise that the average investor would be willing to acquire. A story for a different day perhaps.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.