| Stock trading opens up a vast world of wealth | | | | helps a company to do well in the market. Quality and |
| accumulation for investors. However, it is only possible | | | | integrity helps a company to stay strong in the long run. |
| when the investor can choose the "award-winning" | | | | Hence, it is essential to do a background check of the |
| stocks that bring true value for the money invested. | | | | company and its management before making a heavy |
| Here comes the most pertinent question of how to | | | | investment.b. News about a company |
| choose a good stock. Contrary to the belief some | | | | Reading about publicly traded companies, stock |
| investors have, there can be no set formula or rule | | | | market, etc., on websites and newspapers help to |
| that applies to this methodology of choosing stocks. It | | | | gauge the present and future potential of a company. |
| depends a lot on the personal knowledge and | | | | The Wall Street Journal and the Business section of |
| capabilities of the investor. However, there are certain | | | | the local paper are like "Bible" to a devoted investor. |
| things that can be followed and kept in mind while | | | | Another factor is analyzing a company's financial |
| making a decision. | | | | statements and balance sheet. The income statement |
| 1. Paying attention to the what the market says: | | | | gives s good idea of whether a company goes |
| With so many different factors affecting a company's | | | | beyond analysts' expectations, making a good |
| overall profits and condition, it is very difficult to predict | | | | investing option. A positive, large, and increasing cash |
| which stocks hold good in the long run. But, one should | | | | flow indicated by the cash flow statement also |
| be careful enough to keep an open eye toward the | | | | predicts a good potential for growth. The PE ratio, or |
| market conditions. Stocks do not take care of | | | | the Price/Earnings ratio, is a measure of the value of a |
| themselves; hence, it is the job of the investor or the | | | | stock. |
| stock broker employed to keep a track of the good | | | | "PE ratio = market price of the share / earnings per |
| stocks. A lot of information available in the market is | | | | share" When the ratio is 1 it may mean that the stock |
| intangible. The profits of the company can be | | | | price is fair; when greater than 1, it may mean that it is |
| measured; however, factors like the company's staff, | | | | over-valued. Thus when it is less than 1 and means |
| its competitive advantages, its reputation, etc., hold a | | | | that it may be under-valued, an investor may assume |
| more crucial role in determining the performance of the | | | | that the stock has good potential for growth. Another |
| stocks. For example, if a company's staff is involved in | | | | factor is the top management and the outlook of the |
| some kind of a scandal, its stock prices are sure to hit | | | | stakeholders. A company's future depends on its |
| the "bottom." | | | | leaders. So this factor must also be considered while |
| 2. Investigating and researching: | | | | investigating about the company and its stock. |
| What makes a good stock picker is a vast knowledge | | | | 3. Not putting all "eggs in the same basket": |
| of the stock market through constant knowledge | | | | Diversification is a very good way to cushion against |
| gathering. So it is very important to study and research | | | | the fluctuations in the stock market. It is always wise |
| a lot of factors before coming to a decision.a. The | | | | to spread the investment over a large number of |
| history and background of a company | | | | companies, rather than investing a large proportion in |
| Good management, quality products or services, etc., | | | | the same company. |