How To Buy a Good Stock!

Any good investment portfolio should be well balanced and well diversified.  This includes purchasing stocks either directly through an Online Brokerage Account or indirectly through Mutual Funds.  Before we decided to buy an individual stock or a Mutual Fund that holds stocks, we should definitely research both the stock performance as well as the company so that we fully understand what we are buying into.

Researching a company and being familiar with the past performance of a stock allows us to make sure that the objectives of the investment are in line with our individual financial goals.  If we are looking for stocks to provide steady growth over the long term we should look into buying dividend stocks or blue chip stocks of Fortune 500 companies.  These stocks have a proven sustainability over the long term as well as continued profitability.

Higher risk stocks such as Venture Capital, Value, and Small Cap Stocks offer a potential higher rate of return and could earn us more profit in the short term.  However, with the additional risk of Small Cap and Value Stocks also come the potential for greater losses.  Knowing when to buy in and when to get out without being greedy is the key to investing, but timing the market is never a profitable strategy and can prove to be very difficult.

5 Questions to Ask Before we Purchase a Stock:

What is the Marketing Strategy and Market Share? If you like the marketing campaign and their commercials make you want to buy the product it may be a good investment. It is important to want to buy the product otherwise there won’t be a demand.

Is the Product Line Up and Price on Point? If the product is affordable and available for the masses it may be a good investment.  Think about the success of Wal-Mart.

Is the Company Known by the Masses? If the product a household name brand it may be a good investment.  If the product is widely known it means that people have it in mind while they are shopping, and therefore they will buy it.

What is the Companies History with Volatility? If the company has survived financial turbulence in the past it may be a good investment.  If they have been around for a long time and survived turbulent years with solid products then it may be a good investment. It is also important to know if the company has ever been bought out or merged with another company in the past.

What is the Sustainability of the Products? If the products are just a current trend it may not be a good investment.  If people will always have a need for the products, then there will always be a demand and it may be a good investment.

Other Information to Research Before Buying a Stock

The Last 52 week High and Low. You can find this information on any financial website such as Yahoo Finance.  Make sure that you are comfortable with the price range and fluctuations in the value of the stock.

Watch It For a Week. Follow your stock for 7 days to make sure that you are comfortable with the daily price fluctuations.  It is important to know what makes our stocks change in value and what economic factors affect the daily price.

The Time Horizon. Are you purchasing stocks for the long term? What do you want to get out of the stock? If you want constant growth over the long term then Dividend stocks are the right investment for you.  There is no point in buying a Dividend Stock that pays quarterly or annual dividends if you don’t intend to hold the stock over the long term.

(Photo by Zdenko)