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What are some tips for making stock picks?

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Quick Answer

One stock investing tip for the long term is to focus on companies that serve human necessities instead of human wants, according to For Dummies. Other tips include ongoing reading of stock investing websites, The Wall Street Journal and others, and keeping the picks in a diverse mix of industries.

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Full Answer

Further tips are to use stop-loss orders and to invest in companies with growth in sales and equity, suggests For Dummies. Stock investors should invest in companies that have earnings of at least 10 percent more than the prior year and in companies with debt that is the same or lower than the prior year. Other financial measures include the price-to-earnings ratio, which should be less than 20 for large-cap stocks and less than 40 for growth, small-cap and speculative stocks. The price-to-sales ratio needs to be close to 1, and the return on equity should increase by at least 10 percent each year. A company's debt should equal half its assets or less.

An investor also should have a good rationale for investing in stocks and why he is choosing certain stocks, explains For Dummies. Necessary reading for making sound stock picks includes companies' annual reports, their filings with the Securities and Exchange Commission, Standard & Poor's reports and the Value Line Investment Survey.

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