How to get a good understanding of an investment and what affects its performance.
How to research stocks
Here are a few ways to familiarise yourself with an investment before deciding whether to purchase it.
Get to know the company
Find out exactly what the company does and learn about the sector it operates in. Get a feel for:
- The company’s position in the market
- Main competitors
- Sector prospects
Research the management team
Who’s running the company? Look in the annual report for the skills of directors and a mix of experience across the board. Are the directors buying shares in their own company, indicating confidence? Find investments and look at ‘director deals’.
Analyse company performance
Historical performance is not a reliable indicator of future performance, however it pays to look into company finances. Simply find investments to view key company figures and find out how other brokers view the stock. For a broader view of a company’s finances, take a look at its annual report and accounts.
When is the right time to buy?
While it's difficult to get your timing exactly right, there are a few things you can do to limit the amount you pay for shares and maximise the amount you sell for.
Check recent share price performance
Get an idea of what the market thinks. For example, a fall in the share price could represent a good buying opportunity or it could be an indication that the company is struggling.
Compare financial ratios
Take a look at the six key figures that offer an insight into a company’s potential.
Keep an eye on the news
Think about the impact that markets and news may have on your investments. For example, a high oil price will have a positive effect on the share prices of oil companies - but a detrimental effect on transportation companies, such as hauliers and airlines, whose fuel bills will increase. Bear in mind that often, the market will have already taken into account any news that might affect it.
These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The value of your investments, and the income derived from them, may go down as well as up. If in doubt, please seek advice from a qualified investment adviser.