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