While researching stocks for investment purposes can certainly seem to be very complicated to the novice investor, you’ll be glad to hear that researching stocks is actually not as hard as it may seem.
In fact, even a new investor such as you will be perfectly capable of researching and choosing stocks, and do just as good as some of the trading professionals.
Researching stocks is important, and you’ll never actually want to buy stock from a company until after you have researched it, for the same reasons that you want to carefully research a specific make and model and car before you buy it.
Here are the top tips for making wise stock investment decisions:
Read the Annual Report of the Company
One of the best places to start your research is to read the annual report of the company that you plan investing in. The annual report is easily the biggest indication to you of how valuable the company is. You’ll be able to quickly glance at the numbers to see what kind of a financial position the company is in and if it’s worth investing in their stocks.
Specifically, one good example of an annual report to look at is the 10-K form. This is an annual report that includes several key financial statements that have been audited independently. On the 10-K form you will be able to quickly review the liabilities and assets of the company, check its primary income sources, and also review it cash flow statement.
Watch the News
Finally, just keeping yourself up-to-date on the news of the company you want to invest in will make a huge difference when the time comes to buy or sell a stock.
News can have a huge impact on the stock price, and this will affect your decision as to whether or not to actually invest in the stock. Stick to reputable sources, and make it a habit to always check up on the companies you have invested in or want to invest in at least once a day. Furthermore, you can look for online news articles where the business model of a company is explained in detail (see Fortress Biotech business model for reference), which may help you understand how the company earns revenue and what its competitive advantages are.
Check Free Stock Ratings
The next thing you can do is to check the free stock ratings of the company. A stock rating is essentially an evaluation of the performance of a particular stock and what risks come with investing in it.
A majority of stock ratings systems will actually rate the stock from a one to five scale, with five being the best and one being the worst.
While a stock ratings system is certainly a very valuable tool for investing in a company, it should also not be treated as your only resource during the research phase.
Making Wise Investing Decisions
Only after you have carefully done your research will you be ready to start purchasing stocks.