So as our previous article has explained, for most people(after speaking to a professional advisor), buying and holding the market is probably the best strategy, via a low-cost ETF. Let’s say you have some capital to invest and would like to buy an actual stock, it is important to do proper research before purchasing.
In this post, we will go over some of the key things to look out for before you make the decision to buy. Before we start, it’s important to remember why we shouldn’t probably invest in stocks.
- Following the herd – as with cryptos and other risky investments, buying a stock because someone else has bought it is probably never a good idea.
- Lack of research – we will hopefully help you understand more about this at the end of the article.
- To get rich quickly – stocks are generally long-term investment opportunities, the idea of getting rich quickly is often not a good idea to buy one as it is often not the case.
Having said that, long-term wealth growth can be achieved via stock investing, but it’s crucial to do your research before investing. It’s important to analyse a stock before purchasing it to understand its growth potential and decide whether it would be a wise investment. We’ll discuss the top stock analysis techniques in this blog article and provide you with the knowledge you need to make an informed investment choice.
First things first, always do some fundamental analysis.
What is fundamental analysis?
Fundamental analysis is the practice of analyzing a company’s financial records and other important data in order to determine its current state and potential for future growth. You can better comprehend the company’s business model, revenue sources, and profitability with this technique. Reviewing the following financial statements should be your first step when conducting a fundamental analysis:
- The balance sheet gives a quick overview of the company’s assets, liabilities, and equity at a certain period. You can use this information to evaluate the company’s financial health and ability to fulfil its obligations.
- Income statement: The income statement displays the company’s earnings over a given time period, including revenue, expenses, and net income. You may evaluate the company’s profitability and growth potential using this information.
- Cash flow statement: The cash flow statement details the company’s inflows and outflows of cash over a certain time period. You can evaluate the company’s liquidity and bill-paying capacity using this information.
You can generally get this information from a company’s website. If you search a company’s name on Google along with financial statements, it will normally come up.
Another way of checking everything is sound is to do some technical analysis, this is a little harder, but as a rough guide, you want to look over the past performance of a company, see when large changes in the share price happened and see if you can match this to any key events, does the company do particularly poorly in a recession etc. Think about the current economic climate and see if it is worthwhile investing. This can be difficult with certain companies though. A formal definition of technical analysis is as follows. Technical analysis is the technique of utilising historical market data and charts to spot trends and reach well-informed conclusions about whether to purchase or sell a stock. This approach is predicated on the notion that prices move in trends and that it is possible to predict future price movements using these trends. Moving averages, trend lines, and candlestick charts are some of the tools that technical analysts use to spot these trends and decide which investments to make. This kind of analysis is much more difficult though and is often done by professionals with intraday data. Technical analysis is a great tool, but it’s crucial to remember that it’s not a flawless approach and that it might be open to interpretation. It’s crucial to take into account the bigger market and economic aspects that can affect a stock’s price.
For essential insights and tips on successful investing, be sure to check out our previous post to learn the basics and what actually is the stock market. Simply follow the link to access it now.
