Introduction
Purchasing the right stock will take some time and research. Money is hard to earn especially today so there is no reason for you to buy stocks in a company that you know nothing about. With the proper research along with asking yourself some simple questions you will not be as leery when getting ready to purchase stock.
Step 1
Tip #1
How will you know how much to purchase stock for if you know absolutely nothing about the company? Do some research and see exactly how the company is making their money. The profit could be from the products that are being sold or they could be tied in with something else.
The best place to find information about a company before you decide to purchase stock is the Fortune 500. Here there are annual reports for each company that might be of interest. Read and understand the reports since everything you need to know from an investors stand point is right there. Look at the cash flow statement and compare profits against losses. Also look at the net earning and compare them against the cash flow. If the earnings and cash flow are both increasing then this could be a good company to purchase stock from.
Step 2
Tip #2
It is a known fact that accountants have certain rules that must be followed. One of the rules is accounting for sales that have not been paid for yet. When everything looks good at a glance then stock tends to climb which means you will pay higher prices to purchase stock. Another item to watch for is how quickly the company is making their profits. If there are many companies in their same field but one company is excelling rather quickly then you might not want to purchase stock.
Step 3
Tip #3
Compare the competitors to the company you are thinking to purchase stock in. This will give you an excellent idea if the company is thriving or slipping on their profits. If the competition is across seas then you will need to also look at what kind of plans are in place for employees when they retire.
Tips
Tip #4
Pay attention if the company leans on the economy heavily. A good example was the housing boom. When the bottom of the houses fell out it took a lot of companies with it and some even had to close up shop. When stocks are low the odds are they cannot go any lower. This would be a good time to purchase stock especially if it is predicted that the stock will rise in the near future.
Tip #5
Before you purchase stock in a company think about a worst case scenario that could cause the company to come crashing down. For instance if the company just deals with one or two customers for its business then if they lose the customer then the odds are high the company will end up folding.
By following the few tips it will help make a sound judgment about if a company is good for investing in. If there are some things that just cannot be answered then the best bet is to just walk away and look for another company.
Source
etf.about.com
