Stock Picking – It’s both an art and a science.
For people who are considering investing in the stock market, few topics are of more interest than how to pick stocks. After all, the stocks that you pick to buy, hold, or sell will have everything to do with how much money you make or lose.
Although many experts have general guidelines and tips for picking stocks, there is no single correct way to do it. There’s no secret formula that brokers know and you don’t; it takes experience, skill, and an intuition honed over years of practice to become an expert at picking stocks and then knowing when to sell them again. The analysis of stock market data is an ongoing concern, and one that frequently overwhelms new investors or traders, but with practice, a trader learns to simply process the information almost unconsciously, without having to go through long, step-by-step processes. This split-second process is part of the intuition or hunches that good brokers get and which often prove so profitable in stock picking.
But there are things a beginner can consider when looking at stock picking. If you are considering investing in a company, you can easily do your own research into the company’s financial health and its projected gains and losses for the next quarter. You can also dig a little deeper and find out about those intangible qualities that often make or break a company. What is their reputation? Have they had slow and steady growth or short-term phenomenal growth? What is the work history of some of their executives? Are they known for good customer service or have there been a lot of complaints? These kinds of things will tell you as much about the possibility of a company as a good investment as will their financial reports.
This research is worth doing, and worth discussing with your broker, because if you become skilled at picking stocks, your personal wealth will increase. If you don’t get good at it, you will always have to depend upon others to look out for your best interests, or you will simply make bad choices in your investments.
When you are researching and analyzing which companies to buy stock in, the first element to look at is what’s called the discounted cash flow, which simply means what the company makes when you look at its income minus its expenses. If a company makes a million dollars a year, and spends $750,000 on wages, supplies, equipment, and overhead, then its discounted cash flow is $250,000. You can then decide if this is promising enough to suggest that the discounted cash flow will continue to increase, making stocks more and more profitable to have. If you think so, it would be a good time to buy those stocks.
Stock picking is both an art and a science. It looks at set factors, but it is based on intuition as much as anything else. If you do it well, it could mean a profitable future for you.
Copyright © 2008 Paul Mac Donald
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