What are you looking for in your stock picks? First of all maybe we should establish where you are getting your selections from? Do you subscribe to a newsletter from some guru who has a fail-proof system? Or do you look at the Wall Street Journal everyday or Money magazine to try to find picks? All of these are legitimate sources of information, but the truth of the matter is that all of them are going to be somewhat dated, unless you are getting real time on-line information.
How does real time information impact your stock selection? It can be huge. Think about most magazines you look at. The date on the magazine might be for the current month (often it is even for the next month) but the articles are at least a few weeks old, if not older. How accurate does that make the articles? Often they are factual and accurate, especially if they are giving an overview of a subject, but not current. The way the world works now is with information only moments old. If a mine has a collapse, you don’t want to hear about it a week after it happens, you need same day information.
So you need to determine how much faith you are going to place in the provider of your picks. Do you depend on their due diligence or do you research their picks and judge them against your own set of criteria? If that is the case, then what are you looking at? What are the factors that make up your litmus test? Here are just a few that I have found. Pick and choose, and don’t limit yourself to any one source.
Criteria#1 - Does the company have a long history? This does not have to be a make or break, but if it is a newer company, there is more chance for failure statistically speaking. How can you overcome that? Look at
Criteria#2 - Management Team – Is the leadership of the company worth their salt (and your trust)? What have they done, where do they come from? Do they embrace change? They better.
Criteria#3 – Industry Category – What industry is the company in? Is the product or service on an upswing, downswing or is demand constant? An example of an upswing is almost anything involving the internet or on-line commerce, downswing might be something like the vinyl record industry, constant demand – oil or gasoline sales.
Criteria#4 – Asset to liability balance – What do the books look like? Is the stopck price supported by a strong asset base, or is the company mostly intellectual property, vulnerable to new technology or trends?
These are just four factors I selected pretty much at random. They may or may not be on your list. Could your list use an update? Most market analysts and stock market prestidigitators have a system, not a crystal ball (although some may). Some other factors that people look at are: 52 week high/low, market cap, price/book value, book value per share, debt to equity ratio, return on equity, return on assets, the list can go on and on. So…How do you evaluate stocks?