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For those just getting into trading, the concept of scoring a once-in-a-lifetime stock opportunity is certainly enticing.
However, such opportunities aren’t always rooted in reality.
While it’s much more exciting to dream about hitting it big, the fact remains that making the most of your investments means doing your homework. Sure, researching companies may not sound quite as sexy as scoring millions off an investment at random, but time and time again investing gurus note the importance of doing proper research.
But what does proper research look like, anyway? How can you set yourself up for success on any given trade by asking the right questions? Below we’ve outlined the essentials any aspiring trader should consider before taking the leap on an investment opportunity.
Make Sure You Have a Keen Understanding of the Market
First and foremost, you’re not going to get very far with your research without an existing knowledge of the markets at large. Whether through resources such as Tim Sykes’ Penny Stocks Guide or another long-form guide to navigating the markets, bear in mind that making money through investments isn’t as easy as making a few clicks.
However, all keep in mind that once you’ve overcome this learning curve, you can start getting down to business.
Ask the Right Questions
In many cases, finding the right investment involves asking the right questions. Understanding where a company has been can open your eyes to where they’re headed from an investment perspective. Take a page out of Warren Buffett’s investment strategy by breaking down what a company’s stock is worth with the following questions such as…
- Has company in question performed well on a consistent basis?
- Is the company dealing with any debt?
- Are the company’s profit margins high?
- How long has the company been public?
Once you understand these components of any given company, you can see whether or not you’re looking at a trade with true potential. Don’t think of such research as time-consuming, but rather an insurance policy to ensure that you’re getting the most out of your investments.
Rely on the Tools of the Trade
Don’t assume that you have to go it alone when it comes time to research your trade. There are plenty of stock research tools out there that can help do some of the legwork on your behalf. Screeners and research platforms such as Fidelity can help you look through a company’s history and performance, providing visual context to assess investments at a glance. Such tools are definitely ideal versus digging through confusing annual reports yourself.
Consider a Second Opinion
If you’re mulling over a potential investment and still feel uneasy, you might want to seek out a second opinion from a more seasoned investor. There are tons of online communities for investors out there either through traditional forums or Facebook groups.
While you should always take investment advice with a massive grain of salt, sometimes a supporting voice can give you that extra push and sense of confidence that you need to invest.
Any new investor is expected to perform their due diligence before spending a dime on an investment. By knowing which questions to ask and red flags to avoid, you can go into your next trade with peace of mind.