Over the next couple of posts I will be writing introductions about different technical analysis methods and charts, but for now some general information about stock background research.
Start up by creating a list of potential stocks you’d like to trade ( whether buy or sell short ). Check if they are not on their way to going bankrupt, check their annual reports, etc. Make sure that when you’re finished you won’t have too many stocks to go deeper with.
- Check the general economic data of the country – interest rates, GNP, inflation, prices, employment rate and everything else you can get your hands on. Compare the changes in a country with the past changes in the stock value. How is the stock market overally performing? Are the prices going up? Are the volumes going up?
- Check the industry data. Compare the company’s ratios to the industry’s average. See how the company`s competiors are doing, from news if you can find any new competitors for the company. Is there still market for their products at all?
- Check the company itself. Keywords here – demand and supply of the company’s goods or services; forecasts by analysts; company’s own forecast (also check their past forecasts and if they were right).
- What’s the stock worth? Check the company’s historical prices, see if there’s some notable trend out there. Maybe the stock has been going down for a year now...etc. What are the analysts earnings estimates?
- Consider different scenarios for the company – if there’s a down-trend in demand, what will happen? Or if their raw material’s costs are going up, what would happen then? Considering their debt, decrease in demand, increase in raw material prices, can they still survive with also growing interest rates, etc? Well...just try to think about it.
- Is the stock reliable at all?
- And once you have a general idea of the company – what is the ROI you’re after? In your opinion, can this ROI be achieved with this stock? In how long time?
Note that as I’m learning it all myself at the same time as well then this list is definitely not as good as it could be. And all above should mainly be considered for long-term investments.