5 Important Things to Do Before Buying Any Individual Stock
January 9th, 2018
By Austin Smith in Finance
Stock investments can appear to be nothing but a frenzy of strange terms, phrases, and abbreviations that confuse newcomers to the markets, while specific investments into varying stock companies are often the overlooked piece of the pie that makes up an individual’s investment portfolio due to the inaccessibility of stock market trading. The difficulty and inability to place trades or conduct research on stock companies is fading away each day with the ease of access to information through the internet and additional technologies like stock trading apps such as Robinhood and the newly released You Invest app by the well-known investment banking company, J.P. Morgan Chase.
The advancement of digital technology has made it easier than ever to invest in the stock market, but where do you begin? Here are 5 ways that you can assess a company’s stock through due diligence research.
1. Review the Company’s Quarterly Earnings Report
All companies publish a financial earnings report for every quarter of the year that updates shareholders, or an investor who purchased stock (shares) in the company, with the company’s profit margins and more financial data. These quarterly financial reports are crucial to identify if the performance of a company is below-standard or above-standard when compared to the previous quarter, and especially to identify if the company generates a profit or operates at a loss.
2. Check All of a Stock’s Trading Value History
Places to buy and sell stock will come with a data graph chart that allows you to see the past trading history of a stock for up to 5 years prior. It is essential to review this data to see if there is a recent downtrend in value, possibly due to a financial report that highlighted poor performance in the quarter, or an uptrend with the value of the company’s shares that could’ve originated from a widely unexpected gain in quarterly revenue that could signal a higher level of profit generation from the company. The stock’s value history will always give the numbers on the lowest and highest the stock has gone for within the year and is known as the 52-wk low & 52-wk high. An additional set of numbers, the highest and lowest price for the day, is also included with the status of a stock whenever you check the current value on a graph.
3. Research Press Releases, News Articles, & Opinions
There’s no question that public opinion and investor opinion play two large roles in the minute-to-minute valuation of a company. Companies issue numerous press releases to inform current and potential investors, shareholders, and the general public of its forward progress. Forward progress examples include property expansions, new business deals with another company, or when the company agrees to purchase a different company entity through a transaction agreement that is called an acquisition. Public and investor opinions surround the press releases that companies will issue to promote the company or even combat negative information that was released about it. Sometimes a company’s press release will be a direct response to confirm rumors of investments from a fortune 500 company or to defend an attack taken by short-sellers. A short-seller is someone who invests against a company’s stock and gains money as the company’s shares decrease in value. Short-selling a stock is considered very risky and opens up an investor to a potentially significant loss if the company instead increases in value.
4. Determine Your Buy-in & Sell-off Points
The value of a stock fluctuates on a consistent basis 5 days a week and doesn’t give much help as to when you should buy-in and invest into the company. An example of a possible low-risk investment point is when the company’s current value per share is the same as the number for the stock’s 52-wk low and has, within its trade history, a clear example of when it rebounded well over its 52-wk low. However, companies that are currently at their 52-wk low price may not be sound investments unless public opinion and other research that you have performed points otherwise. If you think that you’ve found a company’s stock value to be under-valued and that it will increase by “x” amount, then you should perform rigorous due diligence research, then buy and decide to sell your shares at the peak in value that you estimated would occur or slightly before it decreases in value.
5. Hold Long or Short For Expectations
If you see a company’s stock prices that you are most interested in investing into and the value history doesn’t display any significant increase or decrease over time, then the money invested into it probably won’t increase or decrease by a significant amount. Companies that have positive projected earnings growths with an even more successful future on the horizon are of great benefit to you if your position on their stock is long. A long position on a company’s stock means you will hold the shares because the value will increase. The long position isn’t restricted to any minimum period of time and your shares can be sold for any amount of profit or loss at any time. It will be up to your research and due diligence efforts to determine if a company’s stock value will continue to increase or to determine if it has already peaked and to sell your shares.
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Disclaimer:
The author does not hold any prior or current position with any stock that is pictured or mentioned within this article. Advice within this article is purely for informational purposes only. The author and Discoveredinnovation.com do not accept liability of your use of this website’s content.
