How to Pick Stocks

Since the financial crisis of 2008, many Americans have become hesitant to invest in the stock market. Negative, downward trends caused many to lose hundreds of thousands of dollars. The good news is that the stock market has begun an upward spiral and is showing signs of positive growth. Now is the time to start investing again.

• Start with a familiar company name or brand. A company that you have knowledge about is a good place to begin because you are aware of their success. If you choose these types of businesses, you will have a good understanding of how they earn their money and that is translated into their quarterly reports.


• Reflect on the price of the stock and the value. Most investors try to locate stocks that are priced very low, as opposed to high. This allows them to evaluate the earnings of the stock on a ratio basis of price versus earnings. Having this information means they are investing very little and receiving a stable or rising return on their investment.


• Understand the different types of stocks that are traded. Investigating company growth is important to your selection. If you show interest in a company and want to purchase stock, remember that they should be growing each quarter. If the company shows negative growth in two or more quarters, it might be wise to wait before purchasing.


• Find out if the company is in any debt. A balance sheet will provide you with all of the information you need to know.  If a company has too much debt, their growth will be staggeringly slow. Their first obligation is to repay their debts. This leaves you with very little, if any return on your investment.


• Learn about dividends. Cash payments are awarded to investors who purchase stock. Not all companies will provide dividends but if the one you are researching does, check their history to see if the payments are increasing or decreasing. A decrease in dividends can mean the company is in trouble financially.