How do you pick stocks?


Quick Answer

To pick stocks, investors conduct research on the industry, look for companies, narrow their search, look at financial statements or presentations and choose from a small list of companies, according to Investopedia. A screener can be used to filter out undesirable stocks.

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Full Answer

Investors need to figure out the purpose of their portfolios, notes Investopedia. For instance, investors who are focused on income usually research companies with low growth in areas like the utility sector. Investors who wish to preserve their capital need to choose stocks offered by blue chip corporations. Those who desire to have their capital appreciated normally look into firms that have different life cycle stages and market caps. None of these methods are mutually exclusive, and investors should apply diversification as an effective strategy.

Choosing a stock also requires steadfast research in the form of reading magazines, news sites and blogs, explains Investopedia. Looking at trends and the status of a certain industry is key to choosing a correct stock. However, investors must think critically when reading through analysis. Another method is picking the company through ETFs, which offer listings of top-notch holdings in the market. Financial statements provide more detail, but corporate presentations offer more of a broad scope of the company's status. This information includes future growth, cash flow and income.

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