This article will cover key aspects of stock research:
- How do you get started?
- Step-by-step guide for stock research
- Stock research toolbox
- How to research stocks: Key takeaways
HOW TO START YOUR STOCK RESEARCH
Prudent investors don't often invest without doing research on the stock or providing evidence as to why it is desirable. In general, stock research begins with understanding three key facts about a company.
- Current financial health
- Current management
- Future vision and roadmap
Importantly, many investors fail to align the company's values with theirs. This is crucial for finding the right investment that will meet their goals. It is important to be aware of your investment strategy and the reasons you want to invest in stocks. This will help guide your decision-making.
A STEP BYSTEP GUIDE TO RESEARCH STOCKS
To help investors make the right decision and achieve their desired goals, stock research must include understanding the company's current and future positions.
- Time horizon to invest
- Risiko
- Types of stock industries/sectors
- Understanding the product/service of your company
- Financial reporting
- Analyse of the industry and competitors
- Follow these industry experts
- Research platforms and terminals
- Types of stock orders
- Broker fees
1. 1.Investment time horizon
Investors need to have a time horizon in order to determine which stocks might be best suited for their goals. Many young investors have long-term horizons and are willing to take more risk in order to build a portfolio. These individuals may prefer portfolios that are more aggressive and include growth stocks with higher valuations.
These investors are able to tolerate greater market swings because they have a longer time horizon. For investors with shorter time horizons (under 5 years), the opposite is true. These investors are more tolerant of large drawdowns in their portfolio. Larger adverse market movements can have a long-lasting impact on someone approaching retirement who may need to begin drawing income from their portfolio.
2. 2.
Time horizon and risk are closely linked. Investors use these components together to determine which stocks to invest in. High-risk investors will choose growth stocks like Amazon and Tesla, while risk-averse investors tend to prefer value stocks with lower P/E ratios. These value stocks could be considered undervalued, and therefore attractive for long-term investments.
No matter what investment style you choose, it is important to practice good Risk Management so that investors can benefit from upside movements while trying to minimize downside risk.
3. Type of stock industry/sector
It is possible to make it easier for investors to research stocks within a particular stock sector. Understanding an industry allows you to do more detailed research on variables and nuances that are not often found in financial statements.
4. Learn about the company's product/service
The later steps of competitor analysis will be easier if you are familiar with the company's product/service. Future forecasts will be aided by knowing what makes the product/service stand out, including the cost factor.
This step is more important than stock research because many companies offer a variety of products/services. Investors need to be able to see how different products/services affect the company in terms of revenue, cost, and future potential.
5. 5. Financial reporting
Financial reports are published by publicly traded companies that give a quantitative overview about the company. Earnings Announcements provide a wealth of information on a company's financial health, performance and prospects. Investors can learn about potential risks and red flags in the company by reviewing the publicly filed reports. They also have the ability to identify management capabilities, income sources, and debt management.
Not only are financial statements important to examine, but so is past data. Investors can gain a deeper understanding and appreciation of the company's past history, as well as its reaction to market conditions in the past. Fundamental analysis requires complex techniques, a deep understanding of financial statements and mathematical formulas, and a solid grasp of financial markets.
6. Analyse of the industry and competitors
Companies often have direct competition with similar or identical business models. Investors should compare stocks of these competitors to identify discrepancies that could lead to investment opportunities.
The industry as a whole is subject to the same rules. Sometimes, a company in an industry is more successful than its competitors or vice versa. Understanding the reasons behind these patterns can help you understand how an industry or stock behaves under certain circumstances.
While industry and competitor analysis are obvious to use when researching stocks, it is a good idea to also analyze other markets. Royal Dutch Shell Plc might conduct competitor analysis against BP Plc. However, another way to compare these companies is to overlay the oil price. This important commodity (oil), is highly correlated with the business model. Therefore, it may be worth looking beyond the equity markets to gain valuable insights.
7. Follow industry experts
Follow industry experts such as respected equity analysts to do further stock research. These experts publish detailed stock research, which can help you compare expert and individual analysis. Investors can also learn from these experts how they approach equity analysis and what they look out for when making investment decisions.
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Research platforms and terminals like Bloomberg can provide investors/analysts with a wealth of analytical tools and techniques. These tools can be used to increase efficiency and provide investors with access to other financial markets and stocks that may be of interest for comparison purposes.
These platforms also offer quantitative tools for complex analysis. These platforms can be expensive so investors should consider their cost relative to the expected benefits before they invest.
9. Types of stock orders
Investors will have to place an order to purchase the stock after the research is complete. Investors can learn about the order types in the stock market to help them focus their execution.
Another concept is liquidity, which can lead to varying spreads or pricing. Stock market liquidity is the ease with which company shares can easily be purchased and held solid, without large price fluctuations. Larger companies, such as Apple Inc, will have tighter spreads and a greater number of shares that can be bought/sold at a given price.
10. Broker fees
Broker fees and commissions are an important part of stock investing. However, they are often overlooked. Investors should be aware of the fees charged by brokers to avoid unpleasant surprises. These fees should be made clear and posted on the broker's website.
