Monday, January 29, 2007

What Stocks Should I Buy?

Every broking house, business publication and TV channel is full of recommendations for one stock or the other. But I sense they have their own agenda pushing those stocks backing themselves with figures and jargon, which I don't understand fully.

With every recommendation, they have a disclaimer too saying they are not responsible for the stock's performance. Why the heck, recommend.

That makes the selection of stocks decision even more difficult, eh! Read on for some sane advice from Ramit which makes a lot of sense to me.

  • The simplest way to narrow the universe of stocks is to think of companies you like and use. What are 15 companies you use and return to time after time? Think of everything, including food, clothing, services, technology, entertainment, transportation, etc. There, you just went from 5,000 stocks to 15.

  • A good company isn't necessarily a good stock!

  • Trends. Are sales increasing from this time last year? 2 years ago? 5 years ago?

  • Products. Is the future bright in terms of upcoming product development?

  • Revenues, profits, growth, earnings per share. The real financial nuts and bolts of a stock, these are intimidating at first.

  • Insider trading. Are senior executives at the company buying more stocks (indicating they have confidence in the company) or selling?

  • Management. Is management good? What is the turnover? What is their philosophy and ability to execute?

When you own a company's stock, you own part of that company. Once you start looking at charts, earnings, balance sheets, etc, you'll start to get a good sense of what's going on. It just takes practice and in the process you take a lot of learnings too.

No disclaimers here! Take responsibility for your financial decisions. Which is better? Depend on somebody to fetch you water when you are thirsty or learning to draw water yourself?

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