Image by: Neil Conway
By George Lamb
For a first time investor, the information and myriad options you may be bombarded with may be extremely overwhelming. And since the process of investing is so delicate–seeing as you can experience the decline of your finances in a matter of days–proper research on the matter is essential to receiving the returns that you are hoping for when taking a plunge into the scary world of investing. Also, research will get you acquainted with the in’s and out’s of investing, giving you a budding relationship with the idea that will improve your confidence while proceeding with your stock choice.
If you have decided this sounds like the route for you, the I’m pretty sure you are already well aware of how much of a gamble investing can be. While a little less devastating than traditional casino gambling–in most cases, at least–an investment is also a risk that needs to be heavily scrutinized before dishing out your hard earned cash. And to aid you in your research endeavors, I’m going to generously provide you with 5 effective tips to utilize when researching a stock.
#1) Consult a Financial Adviser
They may demand a pretty hefty wage, but the fact is financial advisers’ thoughts and opinions will serve as a gold-mine when it comes to making an investment. They not only offer crucial advice and guide you through the confusing steps that come along with deciphering what is considered a worthwhile investment, but they also help you understand what exactly you need to be looking for and can provide invaluable insight for investments you may or may not be on the fence about.
#2) Keep in Mind that no Stock is Guaranteed
This is where the gambling aspect comes into play. Of course, seasoned investors–or even beginning ones for that matter–are all cognizant of the fact that there are no perfect stocks. When it comes to investing your money, you will not always be getting the kind of return you’re looking for. This is why it is important to plan accordingly and always have a backup plan, or a set of emergency funds handy in case something doesn’t turn out quite right with your decision. This will not only keep a roof over your head and food on the table, but will also keep you from getting too discouraged over a faulty investment.
When considering a stock, keep in mind that is impossible to find a perfect stock, as they all demand at least some level of risk. Your best bet would be to find stocks with histories of passable returns that you–or your adviser–feel is on the verge of exploding. Also, another good strategy is to find a company who’s stocks had histories of positive returns, and invest into a similar company that is new or on the up-rise. If the product is hot and showing no signs of cooling down anytime soon, use that to your advantage by exploring as many options as possible.
#3) Analyze the Company
As stated above, looking into the history of a company–unless the one you plan on investing in is relatively new–is essential when putting your money into their stocks. Do your homework and analyze how much their numbers have been fluctuating in the recent past. Also, keep in mind that the larger, seasoned companies will be more stable in periods of economic change. And you know what that means, right? These types of businesses will be viable candidates for sound investments.
Although the bigger, more stable companies with a solid past will be among some of the best options for investments, a great track record doesn’t necessarily guarantee a strong performance in the future. Keep in mind that stock prices are based on projections of future earnings, and while a strong company may leave you feeling more secure about your decision, know that even the biggest, baddest companies can fall.
#4) Determine the Cash Flow
Among the most important things to research is undoubtedly the earnings–or cash flow, if you will–of the stocks’ parent company. It goes without saying that if you see a companies numbers on the up-rise as of late, then that may mean that company is sprouting–which means the investment opportunity will be much more sound than an option with lower numbers. Common sense argues that companies who have experienced periods of decreasing numbers lately that their stocks are nothing more than huge red flags to avoid when considering an investment. But if you’re confident about the specific stocks’ future, then who am I to tell you otherwise?
Got any experience with investing your money into a successful stock? Don’t hold anything back, pal. Share all your fabulous advice with us in the comments section below!