Finding the best stock to invest in depends on what your investment goals are. Whether you are looking for a safe place to steadily grow your money, or creating a nest egg for the future, there are certain fundamentals to cover before deciding where to put your money.
The Research
Finding good companies to invest with requires some diligent research, and continuous monitoring of the market. Fortunately, online brokerages allow investors to set up automatic alerts to assist with this task. To narrow the field, focus on sectors of the market that interest you, and take a simple measurement, such as the performance over the last year or five years, to begin identifying up and down trends. Historical analysis of the factors affecting the prices of these stocks will help identify future performance as well.
Establish a short list of stocks that interest you, and if possible in sectors where you have good knowledge or expertise in. With this list of best stocks to follow, begin delving deeper into the financial standing of the companies. Learning to read a financial statement helps a person understand who is carrying excessive debt, generating good cash flow, or whose spending is out of line with their gross profits. For purposes of finding a solid company to invest in over time, less debt and positive ability to generate cash are good signs.
One can also investigate the company’s management team and learn about their business philosophy, reputation with regard to treatment of employees, and record at previous companies. Executives skilled at generating high profits and providing good shareholder returns will often have well documented stories of their success; poor management performance is just as well publicized.
Following the Market
With mobile and email alerts, it is easy to find out about major events in the stock market. To anticipate future trends, subscribing to a regular online publication like ‘Investors Business Daily,’ or ‘Barron’s,’ is a prudent measure. All the research and monitoring is leading up to one thing; the investor identifying the right time to buy shares in their selected companies. Nobody can predict with complete accuracy which direction the market will go, but they can wait until a stock has hit an annual low to buy.
Using a brokerage account, set the bid price you are willing to pay, and stick to it. These ‘limit orders’ prevent the investor from paying much more than they anticipated, by only buying the stock when it reaches the specified bid price. One way to determine this price is by calculating the ‘P/E ratio,’ or price to earnings ratio of a company. This is a value representing the relative price per share in relation to the annual net income of the firm. The higher this ratio, the more expensive the stock is. However, a healthy ‘P/E ratio’ is also a gauge of how in demand the shares are.
Within a short period of time, picking the best stocks can seem less like a game of chance, allowing the solo investor to find good values that provide a respectable return on their investment over time.
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