It can be overwhelming for investors to choose where to invest their money. And, it’s important for them to remember that when they buy a stock they become a partial owner of the company. In order to take some of the pressure off of picking the perfect equities to invest in, I’d like to share some of the criteria to be aware of when making decisions to better identify equities that are a proper fit for them.
First off, investors should stick with companies they know and that respect them as shareholders. It’s not wise for an investor to go shopping and wander off into the world of biotech just because their friends or family say they should. Instead, they must understand what the company makes, how it makes the product or service and what goes into executive decision making processes. It’s also key to invest in a company that knows it’s owned by shareholders and must return shareholder value by price appreciation, share buyback or dividends.
Although it’s important to invest in stocks they understand, it’s also crucial for investors to look at the past behavior of current management when they’re buying an equity they plan to hold for awhile. Investors should check to see if management is making the proper decisions, taking action and if their decisions have positive outcomes. Investors should also look at press releases, press conferences, financial statements and cash flow to get a better understanding of how management is performing.
Another tip to help investors pick solid equities is to look at stocks that aren’t performing very well, industries that may be down in the business cycle or companies that have stumbled because of an acquisition. What investors want to see in this instance is a timeline and reasonable expectation of change. When investors buy low and sell high, it’s essentially like buying something that’s on sale and hoping it will get discovered by Wall Street and be loved again. Though there is risk involved when picking equities this way, investors that use this strategy are looking at the broader picture and seeing where the stock has potential to change. To help minimize risk, investors should only purchase equities in this condition if the management works well and can deliver on their promises. By utilizing this buy low, sell high strategy, research and understanding of the likelihood of the change is crucial. Otherwise it’s like buying a lottery ticket because it looks cheap.
Making solid investing decisions comes down to education. Although each of these tips individually may help investors, combining all three will help investors pick value-oriented stocks. How much are you willing to invest in the research and education of a company before investing your money? Luckily, at Fort Pitt we can help you do that. If you have any questions about the research we do and what it takes to invest in equities, don’t hesitate to reach out to your advisor or myself.