Investors spend a lot of time debating how to choose stocks. Many take the advice of their brokers, while others rely on hot tips they read in magazines or on the Internet. When the market fluctuates dramatically every dayp, it seems like picking a good stock is a matter of chance. Why not throw a dart at a dartboard and see what sticks?
Picking a good stock can be easier than that, if you keep two principles in mind.
Good Companies Earn Money Reliably
Successful companies generate cash, year after year. You could spend a lot of time looking for stocks with buzz, that'll attract investors based on their potential. That won't help you pick the right stocks; that'll limit your search to businesses with good PR or interesting technical markers. They're not necessarily good businesses in and of themselves.
Limit your search to companies which are worth owning as businesses—businesses with good markets, good products, good customers, good streams of revenue and good expenses. Do this and you'll avoid risk, because good stocks worth owning belong to good companies worth owning.
Great Investors Think Like Owners
As an owner of a business, you must understand the business. Don't worry—you won't need an accounting degree or a big stack of MBA books. You only need to understand how the business works. Think about your hobbies. Think about the products you buy. Think about the industries you or your loved ones work in. Think about the things you already know about. Then look for businesses in those areas.
What does the company make? What does the company sell? Who are its customers? Who are its competitors? How will the company make more money this year than last year?
You probably already know this about several companies.
Whether you're passionate about airplanes or model cars or fashion, you can probably come up with a list of a dozen companies worth investigating. Find out if they're publicly traded. Get their names and market symbols.
How to Choose a Stock to Invest In
There's no single best stock to invest in for everyone. It's more important to pick the right stock, and that right stock is a good stock. A good stock belongs to company that reliably makes money—a company that succeeds in business—and that you understand well enough to know what that success should look like.
You've already done most of the hard work! You've narrowed down all of the stocks in the world to a handful you know something about, and you've resolved to understand just enough of the business to decide whether the stock is worth owning. The remaining question is "What's the right price for this stock?" That's the secret of how to pick a good stock to buy: find a great company at a good price.
Great stock picks are that wonderful combination of good companies available at good prices. If you want to be good at stocks, you have to look for bargains. The best things to invest in are hidden gems.
What makes a hidden gem? That's the subject of several articles. Trendshare's value investing strategy looks at the past several years of history for every business to analyze the basic financial numbers. The result is an analysis of what the company has done and it produces a fair price you shouldn't pay more than for a share of the stock right now. (This technique has served people like Warren Buffett and Benjamin Graham very well.)
The rest is up to you.
How to Pick Stocks with Trendshare
Figure out a list of stocks you find interesting. Run them through the Trendshare stock analysis. Winnow down the list to a few good candidates. Then ask yourself for each one "Do I know how this company can make money?"
Take advantage of our investing guide to help you understand your investments. It'll guide you to set up online stock buying, make your first investment, and really tell the story of a stock you want to buy. From there, buy a great stock and wait for your money to grow.
There's no magic. There's no super secret formula you don't already know. Good stocks—great stocks—are out there, bargains you can pick up at a discount. All you have to do is be prepared: do your research, be patient, and wait for the right price.
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