How To Evaluate Stocks

Post By: Admin / USA Frugal Club

Arguably the best investing skill you can have (besides luck) is the ability to have an understanding of the assets you are putting your money into. This is especially true regarding the stock market, as there are several signals you can look into before you pull the trigger to give you the best chance for success. 

Unlike cryptocurrency, stocks are typically meant to be a long-term investment that rides waves of ups and downs but hopefully rises in percentage over the course of months and years. As a result, it is always a good idea to look into the company’s past. I recommend finding the company’s Form 10-K and Form 10-Q with your brokerage, as this should give you access to annual and quarterly reports with a more detailed analysis of why prices change at certain points. 

On these reports, there is some specific information you should be looking into as well. Revenue is an important indicator to look for, as is a company’s net income. Perhaps the most important stat to look at however, is to estimate the earnings per share of the company, which shows you the past profitability of the shares of stocks themselves. 

In addition to more statistical quantitative analysis, you also should be conducting less number-oriented qualitative analysis. Just because a company would have been a good investment last year does not mean it will be this year. Therefore, you need to do some common sense estimations about the company involving the state of the overall sector of the company, as well as how the company matches up to its emerging competition. Although it is tough to know for sure, you should also factor in the odds of some type of disaster situation for a company, involving changes of leadership and management or other forms of extreme volatility. 

There is no sure win when it comes to investing. You should never invest more than you are willing to lose, and this rule applies to even the stocks you have researched the most. However, with good research techniques, your chance to make money in the stock market will increase dramatically.