How to Pick a Stock to Invest in
- 1
Make a list of companies you admire.writing image by Alison Bowden from Fotolia.com
Make a list of companies you admire. These should be corporations that make products or services you personally know or have used. Expert trader Peter Lynch suggests in his book "Beating the Street" that investors avoid companies with a "hot new drug" or "wild new idea." Companies such as McDonald's and GE were built on excellent execution as much as a good idea. - 2
Track these companies.chart background image by Stasys Eidiejus from Fotolia.com
Track these companies. Websites such as Yahoo Finance, ClearStation, or BigCharts.com are reputable places to look up ticker symbols of companies. The ticker symbol is the symbol a stock trades under on a stock exchange. Example: Ford trades as the letter "F." Some are creative, such as Southwest Airlines, which trades as "LUV". Iconic motorcycle maker Harley-Davidson uses "HOG." Once you are armed with the ticker symbol, examine historical charts of your list of companies. You will want to focus on companies that have performed historically well. If a stock price has fallen relative to it's price three months ago or three weeks ago, you should find out why this has occurred. Financial websites will have areas for news about a stock. You're looking for as much information as possible. - 3
Research your list of companies.magazine image by Angelika Bentin from Fotolia.com
Dig into financial data. Easy data to find when deciding a stock to buy are the revenues and profits of a company. If revenues are down, the company has experienced slowing sales. Look for possible reasons this may have occurred. If profits are up and revenues are down a company may have cut costs. If profits are up similar to revenues look for reasons a company may continue this trend as well as reasons the trend may reverse. Knowing potential dangers before investing will help you more reliably pick stocks successfully. - 4
Review industry sector performanceindustry image by dinostock from Fotolia.com
Look at the bigger picture. Research to ensure you don't have the right company in the wrong marketplace (this is called a "sector" in financial jargon.) Example: you may like Microsoft (ticker symbol: MSFT) as a company but find that software sales for all companies are expected to be soft for the next six months after you complete your research. By identifying trends for different types of products you'll be able to identify companies that have a history of being a market leader in that area. - 5
Make Your Investment.business charts with buy image by Andrew Brown from Fotolia.com
Invest. In steps 1 to 4 above, you narrowed your focus considerably with the goal of narrowing a list of several stocks down to only a few. Most investment in stocks comes down to a gut decision, but completing the steps above before investing will help you avoid a hurdle most investors face. Sadly, people invest without knowing how the stock has performed historically, how the revenue stream appears, a company's profits, and the overall sector performance.
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