Thinking of Buying Stocks & Shares? Some Questions to Ask Yourself First…
Like many, you may be worried about the growing pressure on your finances.
You may be looking for ways to make more money (other than robbing a bank!)
Buying stocks and shares is one obvious solution and these days a lot easier than it used to be!
BUT… if you are thinking of simply handing over some money to someone else to invest that money for you, trusting them to magically make profits for you, DON’T.
At least not until you have done some fundamental analysis and asked yourself these questions about the company(s) your money may be destined for.
1. What Does the Company Do?
A pretty basic question, but one that you might not think to ask if you are in a rush or stressed about your finances.
However, knowing what the company does is crucial for a number of reasons. Mainly, you don’t want your hard-earned money being invested into something that is illegal or even an outright scam.
A quick bit of research should tell you what the company does. What their service or product is? What are their ethics? Who are the people behind the scenes? What are their background and experience?
A simple look at the company website and any other information such as White Papers or internet articles/reviews would be worth investigating too.
2. How Fast is the Company Growing?
This is an important question, because essentially the faster a company is growing is a good indicator of how well it will do in the future.
Is it very niche? Or is it going to attract customers from all over the world? Will it become the next Amazon or Apple?
Also, consider the market the company is in. Who are its competitors? Are there too many?
Having an idea of potential growth is good to know before buying the stock because maybe the company has peaked. Which means the value could decline over time.
3. How Profitable Is It?
Another essential question to ask when making investments or trading investments.
If it is an established company, then access to its financial performance will be easy to get. If it is hard to find, then alarm bells should start ringing.
Most reputable companies will have properly audited accounts, balance sheets, and other financial records you can check.
If the company is not very profitable, then it may not be worth investing in. Having said that, many big companies make losses sometimes, then bounce back again the following year with record profits!
One very good question to ask is – “Will this company go to zero?”
Of course, if it is a young company, it may not have reached profitability yet. Therefore, predictions are something to consider. This again ties in with the growth potential of the company.
4. How Healthy Are Its Finances?
This is linked to the above questions about profitability, growth, and yearly performance.
These days, you can access online analytics that breaks it all down for you with in-depth data on criteria such as company debt, earnings per share, investments the company makes itself, and much more.
This again gives you a good idea of how well the company may do in the future and its growth potential.
The last thing you want is your money going into a company that is on the brink of bankruptcy.
5. How Richly Is the Company’s Stock Valued?
Not such an obvious question, but an equally important one.
The value of a company is referred to as a “market cap.”
That means, for instance, if a company has 5,000 shares and those shares were worth $200 each, the company would have a market cap of $1 million.
The higher the market cap/value of the company, the less room it has for growth.
Having said that, when you learn stock trading it becomes apparent that when stock prices of big companies drop, is a great time to buy because these big companies generally bounce back.
When they do, good profits are made.
6. Is It Worth the Price?
The ultimate question. The answer depends on the other five outlined above.
Because it is all about doing careful research and weighing up important factors.
Yes, investing and trading can make you profits quickly… but that is only when you know what you are doing.
If you are handing your money over to a broker or finance manager to handle your investments, then you have no control and your investment success is totally in their hands.
However, if you invest some time in an investing for beginners course, you may find investing and trading is a lot easier than you think.
You could become a master of your own investments.
And that may well be worth the price.
The whole point of asking these questions BEFORE you allow your money to be invested into stock is to:
- Give you peace of mind, and
- Provide you with a better idea of how successful the stock will be at making you the money you want.
It is also important to remember that buying stocks is not a get-rich-quick fix.
That is why you would be wise to take your time when investing, consider everything carefully.
For more information on this, or to take your education further by enrolling in an online trading course, check here.