Image by: Szaaman
By: Giovanni Fields
When you make the decision to buy a share of stock, you are taking a share of ownership in a company. This is a big decision, and when doing such a thing it is important to be as well informed as possible before handing away your money. You’d be surprised, but their have been claims by several researchers that a large number of investors hardly even know what they’re doing when they get involved with a particular company.
While it seems like common sense for an entrepreneur to do their homework on such matters, there are those select few who decide to jump in naked with little to no insight about what’s going on around them. So if you’re one of the latter mentioned, or are just in the mood for a quick and informative read, then i implore you to continue.
#1) Understand What You’re Investing In
Understanding where your money is going and how its going to bring you in an ample return is necessary for any investor who wants to preserve their title as investor. Investing is a job, and with any other trade, it is required that you become well informed about the particular work that you’re getting into. Famous investor Warren Buffet once said, ” I don’t invest in what I don’t understand.”
All investors should take to mind his words, because if you’re taking the time, effort and money to dish out your life savings to something you are not well informed about, it will undoubtedly lessen your chances of making your profit, and increase the chances of you becoming homeless. Investing is a gamble, and in order to win you need to use all your tools at your disposal, and that means research, digging, homework and all other things that equate to you becoming cognizant of the company you’re investing in.
#2) Who’s Running the Show?
As an individual investor you will have less tools to use than say a professional money manager. While he will be able to discuss matters with the guys at headquarters, you won’t be that fortunate and will have to rely on your data gathering skills to find out any intel on senior managers and how they run their companies before you invest. And luckily for you, there are plenty of different methods you can use in order to find out more about these senior managers.
For instance websites–which should list their background and the companies history–, and various articles or trade publications offer unbiased insight as to how the company is run and if it is efficient enough to consider as a viable investment opportunity.
These articles–ideally–should be able to distinguish any red flags that may encircle the company such as a high turnover rate or negative customer reviews. Although the articles are a useful tool, don’t solely rely on them to make your decision, but rather use them as a tool to help build your own well informed hypothesis as to whether investing in the company is worth the risk or not.
#3) Is the Company Profitable?
The number one question you need to ask yourself before going ahead and splurging on your next investment is–is this company profitable? While this seems like an obvious question to consider, it can be very complicated to determine the answer with all the different variations of a company’s earnings. Although sometimes hard to decipher, you would be able to read the quarterly and annual earnings reports to see how much net income the company documented in dollar shares per earnings.
While a little less reliable, the Internet also hosts various different websites which can prove as useful when figuring out the net worth of the company you are considering investing in. Of course, these documents and reports aren’t always accurate, but at the very least it will give you a template to see what you’re dealing with.
#4) Understand Who Your Competitors are
Competition exists not only in the animal kingdom, but also in the business world. Playstation 4 vs. Xbox 1, Burger King vs. McDonald’s, and Apple vs. Microsoft are all great examples of competitors that are trying desperately to take business away from the opposition. As investor, it is your duty to do a little digging and find out just how much the company is thriving in the competitive world before you plunge forward.
Questions you should consider before doing your research are–how large is the organization compared to it’s competitors and is the organization growing? Does the organization have the largest market share in its niche? Is the organization operating under a whole industry or is it an independent organization that receives only a small fraction of the market?
Of course, before you ask these you would want to decipher who your physical competitors are in the first place, but once you do, use your independence and limberness to your advantage and decide which is the right company to invest in.
#5) Check out the Company’s History
Similar to digging up information on senior managers and people in charge of specific companies, you can use tools like the internet, articles and retired or resigned employees to check out the companies history. It is important to know everything about the company you’re investing in, and that doesn’t only mean the present, but also the future and the past. Figuring out if earnings are volatile and if the company has a history of steady earnings growth is essential when monitoring whether or not investing in a particular company is a wise decision.
Are you brave enough to consider investing your hard earned money into a specific brand? Don’t keep your aspirations a secret, share with us what you plan on banking your money on!