By Sam Chim
There are several factors that you should consider before buying stocks. Great stocks are ones which rise in value over time. However, what factors should you be looking for to determine which of these “great stocks” to rise?
Here are three of the most important things that I look for when looking to buy a great stock:
1. Consider the history of the stocks. If a stock has shown to improve in value consistently over a period of time it is likely that the trend will continue. This sounds fairly obvious but it also works. You do however need to check that there are no uncertainties or trading inconsistencies that may alter the upward movement. This type of investment is likely to bring lower returns but higher stability than a more volatile share.
2. Do they have a good business plan? If a company does not have a good viable business plan for the next trading period and a good planning strategy for the future, then it is unlikely to achieve good profits or growth and may adversely affect the value of your investment. Always check that any company that you are planning to invest in has a good business plan. It will be your money that they are spending.
3. Management history. Who is the owner of the company and do they have a good history of success? Find out about the CEO and directors, do they have a good history of running this type of company. A company with poor trading figures that has just acquired a strong CEO may be about to change direction and may become a great stock to buy.
After you have conducted your research and the stock meets the criteria specified above then the next step is to ask for opinions from others. If you have a reliable telephone stock broker, you can ask him/her for advice before placing the order.
However, please remember that you should not rely solely on other people’s tips (i.e. Stock brokers, newspapers and friends). Tips are opinions and your own opinion on the stock to should always be backed by your own research so you have a better understanding company.
If you would like more in-depth information on how to buy great stocks, we recommended reading as much on stock investment as possible. Some of the books that I’ve found helpful are “The Little Book That Beats The Market” by Joel Greenblatt and “How The Stock Market Works: A Beginner’s Guide To Investment” by Michael Becket.
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