Stock research before investing is like purchasing a house. You could decide based on location and first glance appearance, but overall, you would be missing several essential checkpoints without looking into the house’s bones, interior, and history. Any successful investor with a consistent portfolio will have his/her set of checkpoints they examine before investing; this is called Fundamental Analysis. It is important to note that these checkpoints can vary depending on the categorized trader. For example, day traders and long-term traders typically look for different investment indicators.
Platforms such as ATOM allow you to access all dated and recent reports for any stock you’re interested in. The essential documents to focus on are: • Form 10-K: An annual report that includes critical financial statements that have been independently audited. Here, you can review a company’s balance sheet, its sources of income, how it handles its cash, and its revenues and expenses. • Form 10-Q: A quarterly update on operations and financial results. Do I have to read ALL of that? No! You can focus on critical indicators such as quarterly revenue, expenses, earnings, earnings per share (EPS), Price-earnings ratio (P/E), and gross profits.
This applies primarily to day traders, option traders, and swing traders. Using trends, recent news, and the hype of upcoming information, you can time a steady profit. Platforms such as Google Trends and BuzzSumo, if used correctly, can help you see uptrends in different market sectors as they are happening. An example is electric cars we rarely talked about years ago, but as the impact became louder, the stock market reflected it with spikes like Tesla.
Make sure you know where the revenue comes from. Does it come directly from consumer sales, advertising revenue, or elsewhere? Who are the company’s biggest customers? Repeating this stock research every quarter or so will give you a better understanding of growth and stock potential. If the forms of revenue are increasing/decreasing, it is very telling.
While the financials are essential in stock research, the actual people who operate the company and their values the company operates on. • Leadership: A company doesn’t function without upper management at the helm. You can usually find the names and roles of the leadership team on the company’s website or on platforms such as LinkedIn. Once you find the leaders, do your research. Don’t just read the company’s short. You may be able to find out more about their backgrounds and management styles. It is a great idea to look at previous projects worked on and how they handled success or failure. • Company values: Think about the values and ethics of the company. Look up their mission statement and business practices. Then, read news reports to make sure the company’s actions match its claims. If you disagree with what the company stands for or how it conducts itself, you may want to reconsider your investment. The money you invest might help further a cause you disagree with, so make sure you’re comfortable before you invest. For example, some companies base their overall mission on platforms or reforms that they feel are important.
A firm understanding of patterns within the chart and how they typically work is essential with most day traders and swing traders. Long-term traders don’t usually bother themselves with this unless they plan on buying on a dip. Some basics for reading a stock chart can be found here. Platforms like Trading View are great for looking at any chart without investing.
Know what kind of investor you are and stick with it. Your investor type is an extension of your personality, so when you stray away from it, you typically lose the successful consistency investors strive for. With the influx of social media and investing, it has never been more important to block out the noise. Following the steps above will help filter this, but a lot of it is intuition and investing in what you know rather than what you heard.