With more than tens of thousands of stocks to invest in, choosing the right one can be a head-scratcher. Here are some best practices for new investors to pick the right stock.
Know Your Goals
The first step to choosing investments is to be clear about your portfolio’s purpose. Although everyone aims to make money, some investors may want to focus on capital appreciation, on preserving their wealth, or on generating additional income during retirement. The strategy to achieve each of these goals differs from one another.
Choose What Type Of Investor You Are
Investors with the target of capital appreciation try to focus on stocks of companies that are in their best early growth years. They are willing to take greater risks to gain big.
Investors who wish to preserve their wealth are less tolerant to risk. They prefer investing in stable blue-chip companies, like those related to consumer staples.
Investors who are interested in growing their income focus on buying stocks in companies that pay good, regular dividends. These could include utility companies, highly-rated bonds, master limited partnerships, and real estate investment trusts (REITs).
Diversify Your Portfolio
Any type of investor can combine their strategy. A conservative investor can allocate a small portion of a portfolio to growth stocks. A risk-taking investor can set a part of the portfolio for stable blue-chip stocks.
Stay Updated
It’s important to stay on top of market and finance news, and industry blogs by writers whose views you find interesting.
Analyze The Reason Behind Picking A Stock
An investor can deduce that as the demand for a product increases, some producers of that item stand to gain. Such an analysis justifies why you’ve purchased a specific stock. You must also be critical of your assumptions and theories.
Identify Companies
Find the top-performing companies in the industry by using a screener to filter stocks based on criteria like sector and industry, check the exchange-trade funds (ETFs) of the industry, and read blogs/articles/financial news releases about the companies operating in the industry you plan to invest in.
Evaluate Corporate Presentations
Going through investor presentations can give you an idea about the direction towards which the company and the industry are heading. You could also check company websites.
The final step is deciding whether you’re going to invest in the stock—a call you’ve to make carefully!
