Use This Checklist When Choosing Stocks to Buy
What criteria are you using to choose the stocks you invest in?
Do you have a system?
It takes time to learn what the best techniques are for choosing stocks.
All companies are not built the same and we can all attest to that from our own work experiences.
From 401k investing, to owning your own stock portfolios, you need criteria to base your decisions on.
Today, we will cover possible aspects you can review before investing in any company.
Let’s get started.
*None of the literature in this article is investment advice. It is purely educational. Please do your own due diligence before investing into any investment.*
Culture could be commendable on uncommendable attribute for a company. Regardless, this is an attribute that a company should be noticed for.
We all know what it feels like in an “every person for themselves” work atmosphere. Versus when the atmosphere is a true team atmosphere. Hopefully, we all have had a balance of the two so we know the difference.
Unfortunately, commendable culture atmospheres are not as abundant as they should be.
A positive company culture is when the atmosphere promotes positivity, has high engagement, development and delivers results. The atmosphere should be centered around people, professionalism, positive reinforcement, teamwork, growth and high performance.
Thanks for websites like Glassdoor.com, we have the ability to review companies to see what their employees are saying about them.
Companies who are proponents of feedback and high engagement are better connected with their customers.
Keep in mind, your team is also your customer. When you work with someone, and you each have a role, are you not each other’s customer? Of course you are…
So, engagement is internal and external. The better employees understand this relationship, the better they will understand how to engage with internal and external customers. They will also be engaged to the product or service that the company stands by. Ultimately, creating a much better experience for everyone.
- Be sure to review a company’s culture to see if their employees like the atmosphere they are working in.
- Also, see what the employees have to say about their CEO.
The CEO is the first person the culture comes from. High engagement and awareness of the company’s health should be well known by the CEO. Usually, this can be determined by the level of attrition a company has.
See reports like, Barron’s top CEO’s, which is published yearly to see the top performing CEO’s and why.
Performance is a true sign of strength.
High engagement assists in a company becoming better performers. High level production comes down to training, coaching, feedback, employee retention and consistent development.
- When all of these are present, in addition to culture, you have a strong company on your hands.
Not only will you have a high potential to be top performers, but when you couple consistent development with a company who is highly aware of its true potential, this makes the company much stronger.
Creating goals that are attainable are key. Growth, projections, good bookkeeping, accounting and good goal setting, allows for projections to be met or exceeded.
Hopefully, you are seeing how if all this connects, it could be a great company to consider investing in.
These are all great attributes thus far, but now let’s check the results.
- Are they growing? Are they meeting goals? How are their profit margins?
Financial reports is where you will see the true performance.
Financial reports can be challenging to understand if you’ve never reviewed them before.
Feel free to check out our Stock Market: Company Evaluations Playlist and our Stock Market Fundamental Analysis Playlist on our YouTube channel.
Be sure that when you look through the earnings reports, you also review what the leaders have to say about their earning performances and future projections. This can be done by listening to the earnings conference calls.
Yes, you as an investor can listen to any public company’s earnings call to get first hand feedback from company leadership.
A good website to connect all financial reporting attributes for a company as well as their chart analysis is on Finviz.com.
- See news, stock charts, analyst opinions, and links to the company’s website all here.
Go to the company’s website to get to the conference calls.
- Investor relations sections usually have these details. Or you can use the search bar within the company’s website (if they have one) to find the earnings calls.
While listening to those earning calls, keep an ear out for the ‘why’ behind current performances and how the company expects to grow in the quarters/years to come.
- Growth plans should be attainable, make sense, and be actionable.
Listen for the dialog, but look for the actions of these growth goals actually happening (or coming to fruition). Its one thing to mention a goal. But, results tell the true story.
- Be sure the company isn’t all talk and no actions.
Innovation is a very important aspect of company growth. It is up to you to understand and believe in the goals that the company has expressed.
Afterall, if you don’t believe in their plan, you don’t believe in their growth. Ultimately, your faith in the company aligns whether you truly believe in the company or not.
Many times you hear investors mentioning to remove your emotions. Well, this is one of those times. Base your judgements off performance and ability, and not emotions.
Make decisions on whether you think the company will grow long term or if they have plateaued. Be sure they are winners amongst their competitors.
Also, its not only about you believing in the company’s plan. How about them believing in their own plan?
This is the next attribute we will check for…
Are the owners invested in their company? Have they bought more of their own shares recently? Or are they selling shares?
It is important to apply knowledge of what the leaders are doing with aspects of betting on their own company.
If they are selling shares, it doesn’t always mean they aren’t bought into the plan. It could just be that the company is doing really well and they want to take profits (as you would with your stock purchase).
What’s important is if they are continuing to invest, and if so, what percentage of the shares are owned by leadership.
- You can also see this on Finviz.com. Be sure to capture this important component.
Being an investor in your own company will have an effect on the performances you are willing to accept.
Simply put, its a measure of accountability, that is either present or not present.
This leads us to the next criteria.
How is the company performing in comparison to their competition?
Yes, this is yet another aspect of reviewing the numbers. Similar to reviewing financial reports. However, this review is about purchase timing and using the P/E ratio or price to earnings ratio.
Take the P/E ratio of the company you are thinking of investing with, and compare it to the P/E ratio of the company’s competitors.
The P/E ratio is the price to earning ratio. It is a measure of how expensive the stock is in relation to its competitors in order to determine the stocks valuation potential.
See more education on our YouTube channel under our Stock Market: Fundamental Analysis Playlist.
When considering a potential investment, you’ll want to know if the stock is currently priced well for an entry point.
You don’t want to buy a great company at a peak value. But you want to determine if your entrance to the investment is at an ideal time.
Meaning you’ll want to target buying low and selling high.
Be mindful that you may never time your purchase point perfectly. But if you are within range and you are dollar cost averaging, you will enter with a solid plan in place.
- Dollar cost averaging just means the investor invests with the same number of dollars each month or each quarter over time.
Dollar cost averaging helps your potential to make better long term investments.
Of course, this isn’t investment advice. But, its ideal that you target long term strategies unless you are a seasoned investor.
Choosing stocks can be a challenging task. However, any investment without the thrill of the hunt, isn’t the same.
Finding a stock that you believe in and seeing that stock perform at, or better than expectations, is a great feeling.
Begin your journey of investing and start putting your money to work. We all want to arrive at a level of independence where our money is working for us. Stock market investing is a gateway to achieving those goals.
We wish you all success in your future investments.
Thanks for joining us today.
Love ya and keep striving for growth.
Please comment if this article was helpful and what your strategy is for finding stocks to invest in.
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