How to Pick a Stock

[jeffrey]

By Brad Barnes

So you want to know how to buy a stock? After reading this you will be better off then the average investor buying stocks. A lot of investors have there financial advisor or company there investing with pick there stocks. If you’re picking your own stocks and managing your own portfolio this article will help you out. Here’s a list of things I look for when buying a stock.

1. First off I only invest in stocks. I don’t buy mutual funds or bonds. Stocks will have greater returns then anything else out there. Stocks will be the best way to build your wealth.

2. Look at there balance sheet and cash flow statement. I like using Yahoo Finance page for this. Type in the stock symbol and on the left side of the page you can find the companies balance sheet and cash flow statement. What I look for on the balance sheet is the company having more assets then liabilities. I will not buy a stock if they have more liabilities (debt) then they do assets. Now on the cash flow statement what I look for is the company making money. Not only do I want them making money but I look at there past 3-5 years I want the company to be making more money then they did the prior year. I don’t want to buy a company that 5 years ago the where making more money then they
are today.

3. Look for stocks that pay out dividends. A company that pays out dividends is just another way that your stock is going to make money for you. The higher the dividend the better.

4. Buy stocks that people just love the products. For example, Apple iphone anyone that has that phone is usually saying it’s the best phone they love it etc. Now someone having a Blackberry might be saying its ok. Another example I hear is Chipotle people love there food now compare that to a Burger King people will say there food is ok. So listen to people/consumers the more you hear good things about a company there stock is probably doing good.

5. Be diversified. Try not to have more then 20-25% in one sector. What I mean by a sector is the market is divided in to sectors a few examples are Energy sector, Financial sector, Technology sector, Health Care sector, Utility sector etc.

6. Do your homework on the stock weekly. Per every stock you own put a good 30 minutes a week just staying on top of its current business and if any news is coming out on it. Bad news will hurt a stock price. For example, GM or Ford announces a big recall there stock price will probably go down.

7. Don't get scared away because the stock price is so high. That’s a good thing means they have high growth. Like Google stock is at $500 a share now. Investors that don’t have big money to play with think that stock price is expensive because they can’t afford it. Well years ago it was at $250 another stock price that seems expensive. So just because its expensive and if it looks like a good company to buy then buy it. If you can only afford 10 shares that’s fine.

8. When you buy a stock make sure you can explain what they do. Do not buy a stock if you have no idea what they sell or how they make money. Your putting your hard earned money into this stock so know there business. If someone says buy XYZ company because there booming. Don’t just throw money into it because you just hear stuff. Find out what they sell, what markets are they in, how long have they been around, they have high profit margin, are they always coming out with new innovative products etc.

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Brad writes articles on Investing in the Stock Market, Retirement, Being Frugal, Budgeting, Real Estate, etc at Money Class

[jpg7n16]

hmmmmm... I dont know about this guy.

1. Disagree. Mutual funds can be composed entirely of stocks, so it's possible to be in a mutual fund, and stocks only. Individual stocks are not guaranteed to make more than the stock market as a whole. In fact, individual stocks are much more risky - and require a different talent level to manage successfully.

It seems odd that he'd suggest to only invest in individual stocks, not mutual funds, but later say that you must diversify. Mutual funds give extreme diversification.

Bad start for an article.

2. Agreed with the 1st sentence, then not so much. Having more liabilities than assets isn't always a bad thing (utility companies are very stable and have high debt loads).

Then you have to look at the income statement not cashflow statement to see if the company truly made money.

If you borrow $5000, you will show a positive cashflow of $5000 - but you're no better off financially than you were yesterday, because it wasn't income.

And then there are spelling errors, which I find odd. ("there" s/b "their") No editor?

3. Disagree. A dividend doesn't tell you anything about the financial future of a company. It's nice to have some income, but if you reinvest dividends, this point is irrelevant. (reinvesting the dividend is the same thing as the company reinvesting its money, but not paying a dividend)

Also odd that he would promote dividends as a must, and then use examples of Apple, Chipotle and Google - none of which pay a dividend.

4. Agreed.

5. Agreed in principle. But if you want to diversify, there's nothing wrong with using mutual funds. The more novice of an investor you are, the more you can benefit from mutual funds.

6. Meh - disagree. If you're in the stock for the long haul, checking your stocks once a week is overkill, especially if you are diversified as he says to do. The more stocks, the more time will be spent every week. Think about it... what's gonna change in the business structure of Google in 7 days? Probably not much. By checking your company so frequently, you'll just encourage yourself into more activity, which is not a good thing!

7. Definitely disagree. Sometimes a large dollar figure is justified, but in general, you want to buy low and sell high. If the price is high in comparison to the company's valuation, the market may have already priced in all the future earnings, and left you with a narrow profit margin. It is a poor strategy to buy something just because the price is high. Do your research and see if the price is justified.

Definitely a bad practice to think that a high stock price is 'a good thing.'

8. Agreed. But think long term, not in 7 day increments.



I'm not so sure about this guy's advice. Seems hit or miss. If this is what the advice is like on his site, I won't bother.

[moneyclass]

Nice comments I enjoyed reading....To touch on a few points....

First off stocks do outperform mutual funds. I would rather have a portfilio full of stocks then mutual funds. Oh yeah let me touch more on that being young I would like to own my stocks because yes they are alil risker but do make more. As I get older yes mutual funds will come handy because they are a safer investment.

Yes you are right Apple Google and Chiptole do not do dividends but if you reread number 3 I do not talk about those stocks in that number. I use those stocks for examples in my other ones.

My number 7 you disagree with me. Umm well Im not saying to go and buy the expensive stocks I'm saying to look at them just dont be scared off with the high stock price. Your right they might not be a good investment still gotta do your research on any stock if its 1 dollar to 500 dollars.

And my spelling errors...Really? This aint English class.

[jpg7n16]

First off stocks do outperform mutual funds. I would rather have a portfilio full of stocks then mutual funds. Oh yeah let me touch more on that being young I would like to own my stocks because yes they are alil risker but do make more. As I get older yes mutual funds will come handy because they are a safer investment.

The way you say that makes me feel that you don't understand what a mutual fund is.

If you own a diversified portfolio of individually held stocks, and I own a stock mutual fund - we are both 100% invested in stocks. I don't think you get that.

Unless you have some study that shows that portfolios that hold just a few individual stocks consistently outperform mutual funds then I don't know what point you're trying to make.

You say portfolios of stocks are good and diversification is good; but mutual funds (aka - diversifed portfolios of stocks) are bad - how can it be both??

The only logical conclusion is that you don't fully understand mutual funds.

Yes you are right Apple Google and Chiptole do not do dividends but if you reread number 3 I do not talk about those stocks in that number. I use those stocks for examples in my other ones.

I'm aware. I was pointing out how it's odd that your advice changes between bullet points.

If you are truly following the advice in bullet #3, then you would never have considered Chipotle, because you would have been looking solely at dividend stocks.

And if you think that Chipotle is a good investment, then you don't truly believe that you must have a good dividend.

So which is it?

My number 7 you disagree with me. Umm well Im not saying to go and buy the expensive stocks I'm saying to look at them just dont be scared off with the high stock price. Your right they might not be a good investment still gotta do your research on any stock if its 1 dollar to 500 dollars.

I believe your exact words were...

Don't get scared away because the stock price is so high. That’s a good thing means they have high growth

A high price does not always mean high growth. By your own argument you should do the research to see if the growth potential is higher on a $1 stock or a $500 stock.

A high price is not a good thing. A high price does not mean high growth. It just means a high price. You always have to research everything behind that price to see if it is justified or not.

And yes, a $500/share price can be too low, and a $1/share price can be too high - but you've got to do the research to figure that out. In general, the higher the price, the farther it has to fall.

And my spelling errors...Really? This aint English class.

That's true. But a professional site can at least spell words correctly.

If you expect people to take your site seriously, maybe you should make it more professional. I'd start with running a basic grammar check on MS Word before posting your articles.

When I read an article with basic English errors in it, it makes me doubt the intelligence of the person who wrote it. 'This guy who doesn't know the difference between 'your' and 'you're' expects me to take his advice on investing? Please.' And I'm not the only one who thinks this way. You're costing yourself readers.

[moneyclass]

I do know about mutual funds. Yes your right it is a diversified investment i'm not saying there not. I wrote an article on Stocks not Mutual Funds.....so the point that I was talking about was be diversified with stocks if thats all you own.

If i did an article on Mutual Funds then yes I would touch on those points. The article was on Stocks and only Stocks.

I definitely do like all your comments and feedback.

Oh and about the spelling check and stuff. When I write bigger articles and items that alot more eyes are gonna see it then I do have a professional look it over and fix my errors. My website that I built was looked over and fixed by a professional. So I do take my work seriously and hope others do to. I write alot of articles so something I put together quick I take care of those and yes I will do a quick Microsoft spell check and thats it tho.

Hopefully Ill keep posting articles here so all feedback you give ill read and take seriously. Thanks!!

[bjl584]

I agree with some of this article, but some of it I strongly disagree with.

For instance, Point #3 concerning dividends. A high dividend yield in itself is not necessarliy a good thing. It could be unsustainable. It's better to look at the history of the company when it comes to regularity of dividend payouts AND raising their dividends. You need to do a little more homework when picking dividend yielding stocks than simply picking ones that have a high yield attached to them.