Know the Company
Recently, a trader friend said to me, "You know, I look at all the different stocks I own, and sometimes it fun to find out what these companies actually do". What!! I almost fell off my chair. I said, "Are you kidding me? You just randomly bought stock in a company and you don’t even know how it makes money!? You are using your own money, right?" Of course, this attitude would still be irresponsible with another person’s money, but I was trying to give this guy an excuse.
He went on to tell me about this software he bought that just tells him what to buy. He admitted that he had marginal success with the software but he figured that he spent so much money on it that he might as well use it. The whole concept of blindly listening to other people is why many investors lose money in the market and never go back. You need to do the research.
The problem is not just trading software. The same problem exists for people who buy a stock because it happens to be in the news. The company looks interesting and the talking head on CNBC said they liked the company. That makes it a good investment, right? Not really. Actually, if the company is on CNBC and someone is telling me they like it, I become more skeptical. Being on CNBC doesn’t make a stock a bad investment, but it will definitely make me take a second look before pulling the trigger.
Don’t Invest Backwards
Many people invest backwards. They buy a stock and try to fit it into their investing strategy. This makes the investing world much more confusing than it has to be. You need to focus on your ultimate investment goals first and build your portfolios around them. This way, you can cut through some of the "noise" in the market. In the next lesson, I will teach you about keeping focus in your portfolios. When you have focus and goals you are trying to accomplish, the rest comes easy.
Sit down and think about your investing goals. Only then can you do the research. If you have your goals in mind, your investing research comes more into focus. You waste less time searching for investing ideas. Companies can then be identified more quickly as a buy or something to put on your watch list.
Use Consistent Research Methods
When it comes to the mechanics of stock research, you need to have one research method. Even if you use the SafelyWealthy.com strategy of two portfolios, you need to keep your research consistent. You can then separate your decisions based on your trading or investing goals.
Using the same method of research for each decision will make your investing and trading more consistent. If you have consistent investment decisions, you will not be forced to look back on a bad trade or a bad investment and sell. You will never wonder, "What was I thinking?". It will all be there in front of you.
I suggest you have a binder with all of the stocks you research. Each page should have your research on a particular stock. Even if it is not a buy when you look into it, you should keep your notes. You never know when it will be a buy and you don’t want to be caught doing research while others are making money. Even worse, you don’t want to buy without doing the research
Christopher T Yeager is an investment and banking industry professional. He has almost a decade of experience in the market as a representative and an individual investor. He is also the President and CEO of www.safelywealthy.com, a comprehensive investing and personal finance webiste. He also publishes the SafelyWealthy.com Stock Tip of the Week. In this Free weekly newsletter, Yeager recommends stocks that will move higher in the coming weeks for his subscribers.
