Two Principles in Picking Good Stocks
Investing in the stock market is one of best investments you can make. That is of course if you put your money in good stocks. But how do you exactly pick which stocks to buy?
Here are two investment principles that you might find helpful in the long run.
Successful Companies Earn Money Reliably
If you find yourself a good company, you find yourself a good stock. Ask yourself the following questions before purchasing stocks from a company.
What is the company’s historical financial performance and future outlook? This entails analyzing past and current financial performance and comparing such performance to similar-sized companies within the same industry.
How clean is the company’s balance sheet? Checking earnings alone won’t tell you much about the a company’s actual performance, especially about crucial issues like debt. You want a company that is not saddled by an enormous amount of debt. You want to invest in a company with high income and high inventory levels. Most of all, you want to be a part of a company that invest in research and development.
Good Investors Think Like They’re the Company Owners
As an investor, you must learn to adopt the mindset of a business owner. So, do your homework and understand how the business works. Find answers to the following questions:
What does the company do? Warren Buffet has an advice – do not invest in what you don’t understand. If you don’t understand what exactly the company does, research it and find out for yourself.
Is the company profitable? Make sure to check the company’s quarterly and annual earnings reports first.
Who are the competitors? Very few companies today monopolize the market. There’s Pepsi for Coke, Samsung for Apple and a host of other competitors. It is important to know where your chosen company stacks up.
Who’s managing the company? If the company has a website, check out who its executives and senior managers are. You should be able to find articles about executives online. Remember, an organization is only as good as the people running it.