Investing in stocks can be tricky and intimidating, especially if you’re new. This is why a lot of people advise hiring a financial advisor who can help you manage your portfolio.
The truth, though, is that there’s no one else who can understand your risk tolerance and your financial goals as accurately as you do. Add to that the fact that some advisors may be biased towards certain stocks because the benefits they can get, and you have a really good reason to just fly solo.
Cut out the middleman! You don’t need to get a financial advisor to help you find the most profitable stocks for your investment style. By the end of this article, you should be able to pick out the right stocks for your portfolio.
Here are five important tips to remember when selecting stocks:
In studying the technical values of stocks, t’s very easy to forget that these are actual companies. They are susceptible to the usual problems, such as weak management and creative stagnation. For example, even Apple’s stocks saw a minor decline, seeing as how many investors expected changes in the company after Steve Jobs’ demise.
In choosing your stocks, you also need to study the company, its workforce efficiency, and the strength of its upper management team. To do so, it’s a good idea to subscribe to financial news websites, magazines, or even just read the business section of your newspaper regularly.
Choosing stocks really involves deciding on your comfort zone. If you think you’re not comfortable with high risk stocks, then there’s no one to force you into buying them. To check for a stock’s risk level, you need to look at price volatility.
Some companies have steady prices, while others have significantly obvious highs and lows. The higher the stock’s price volatility, the higher the risk involved. There are many sources to visit for stock information, like Forbes or CNN Money. Other options include E*TRADE and Google Finance. Finally, there’s also Thomson Reuters and Bloomberg.
Price to Earnings Ratio
The P/E Ratio is one of the most important numbers to look into when choosing your stocks. However, you have to be careful not to get carried away. See, stocks with high P/E mean they are valued by other brokers.
The problem is that sometimes the P/E can be speculative rather than accurate. This means that the value of the P/E is the result of future expectations rather than actual performance. What does this mean for you?
This means that you might not be getting a fair price. You might end up paying more for a stock that isn’t worth that much. When studying the P/E, you have to take other factors into consideration as well.
Return on Equity
The ROE or Return on Equity can best be described as the rate by which investors earn from their stocks. Warren Buffett puts much importance in a stock’s ROE before deciding.
See, companies with consistently good ROE perform better than their counterparts. This means that the company is worth looking into. Of course, the ROE is not the only factor. However, if you want to pick up Buffett’s investment style, looking at the ROE is one of the things you can do.
Debt-equity ratio is another factor to take into consideration. Obviously, no company can be completely without debt. However, if the ratio of debt to earnings is too high, this is indicative of poor fiscal health.
Definitely, you don’t want a company that spends more on paying off its debts than on development and growth.
So what are you waiting for? Start testing some of these research strategies now to identify the best stocks to invest in for your investing style; then you can follow the stocks which you identify to test and hone your strategy.