By James Woolley
A lot of people enjoy the analytical aspect of stock market investing because they can sit down at their computer for a couple of hours and seek out stocks that could potentially make them some money. Good solid research is absolutely critical, so let me explain how you can effectively research various different stocks.
First of all you can look at the financial accounts of various different companies. Once you have a shortlist of companies drawn up, you will often find that you can eliminate a few of these straight away simply because they have debts that are far too high, and possibly unsustainable in the long run. The net debt figure should ideally be no more than three times current full year profits.
Additionally you want to look for companies that have strong balance sheets as well as healthy profits year on year. If they are raising both their earnings and their dividend payouts every single year, then this is obviously a very good sign.
A second way you can research shares is to look at future earnings estimates for the next few years. It is all well and good looking at past financial data, but it is the future earnings that are most important from an investing point of view.
You should look at financial websites to find analyst forecasts regarding things like future profits, earnings and dividends, as this will give you a good indication of whether the company in question is likely to continue growing in the next few years. The analysts who produce these estimates will have done a lot of background research on these companies, so they are often a very useful guide.
Finally you can also complete your research by visiting the various stock market forums and reading threads that focus specifically on the companies that you are researching. You have to be very careful here because there are a lot of people who post false or misleading information on these boards in order to encourage people to buy or sell these stocks. However you will usually start to see which posters are worth listening to, and which posters you should completely ignore after a while.
So to sum up, if you do want to research various different stocks, you have three main options. You can read financial data, look at future earnings forecasts and read the various forums. Ideally you should do all three, or at least the first two, and you may even want to look at the charts as well to help time your entries and see how the share price has moved in the past, In short, you should do as much research as you possibly can when thinking about investing in stocks.
About the Author
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