There are thousands and thousands of stocks out there. And it’s not surprising that new investors find choosing which stocks to invest in an extremely overwhelming task. After all, it’s quite a job to sift through every income statement and earnings report to see which companies are beating it and which are down in the doldrums.
Set Your Goals
When picking stocks, the first thing you should do is determine the purpose of your portfolio. Investor often choose among income generation, capital preservation, and capital appreciation. These things also have different criteria.
Investors that focus on income generation usually go for low-growth companies in industries and sectors like utilities.
Meanwhile, those who have lower risk tolerance often go for capital preservation, where they invest in blue-chip corporations with steady performance.
And for those who want capital appreciation, investing in companies with ranging market capitalizations and phased cycles is the way to go.
Keep Abreast with Important Market Developments
You also need to stay informed and stay in the loop of market events and opinions. You can read blogs, market news, and online financial news. This is one passive research habit that you can do daily.
When you read articles and blogs, you can dive deeper and research what drives a particular industry. On the internet, you can find multiple analyses of the same event through various perspectives.
This method of analysis lets you find a basis for the overall picture behind the investment, which you can use to justify the purchase of any stock.
The next step is about finding the specific company you want to invest in. There are many ways in which you can accomplish this.
You can find exchange-traded funds that track the performance of the industry and see their holdings. This can be done very easily.
You can also use a stock screener that filters stocks according to a specific criterion like sector and industry. This tool also offers additional features like sorting companies based on dividend yields, market caps, and other useful metrics.
Although these methods aren’t the only ways to search for good stocks, they are very good starting points.
Searching for ETFs is obviously the fastest way of narrowing down your search. On the flipside, ETFs usually hold the biggest companies in the field. That means they often ignore micro and small cap companies.
For stock screeners, investors can enjoy a faster way to filter stocks based on their desired inputs. Screeners also include comprehensive list of securities including international firms. However, the downside is that their investment metrics are somewhat misleading.
After finding the right industry and you’ve found the major players, you now go deeper and turn your focus to investor presentations.
Even though corporate presentations are less comprehensive than financial statements, they offer a general overview of how the company makes money. They are also easier to browse through.
At the same time, these presentations usually have forward-looking information on the future direction of the company and the industry.