Stock Pick

THINGS YOU SHOULD KNOW BEFORE PICKING STOCKS

• Nothing in the market is guaranteed. 

In the world of investing, nothing is guaranteed. While over the long term, the stock market has historically trended up, you're likely to experience bumps along the way. Never invest money you can't afford to lose.

• You are betting on yourself. 

By opting to pick individual stocks, you're betting on your ability to beat the market and exceed the return of the stock market at large. 

• Know your goals, timeframe and risk tolerance. 

If you're a young, swing-for-the-fences investor, you've just narrowed your universe down to high-risk, high-reward names. If you have a shorter runway, you'll likely only want to consider blue-chip companies and dividend stocks.

• Research. Research a lot. 

There are two primary strategies investors use to research stocks: fundamental analysis and technical analysis.

• Keep your emotions in check. 

Successful long-term investors need an iron will to go along with their iron stomach and resist the urge to sell at the worst of times, only to be forced to buy back in the best of times.

COMMON STOCK PICKING ESSENTIALS

• Find companies you understand. 

Picking stocks is about reading a company’s prospects better than anyone else. If you lack understanding of a company’s business, you’ll have less of an idea of how positive its prospects are.

• Pick story stocks and trade the news. 

Story stocks are shares of companies that are priced based on a popular narrative of potential upside growth. Story stocks, such as Amazon or Tesla, are quite extreme examples of growth stocks.

• Technical analysis. 

Technical analysis is one of the most used tools for picking stocks for short-term trading. Technical indicators​ can help decide a trader’s entry and exit points. 

• Fundamental analysis. 

Fundamental analysis​ considers qualitative factors, such as macroeconomic and microeconomic factors, to determine a company’s intrinsic or relative valuation.

• Analyst ratings. 

Analysts at investment banks and other financial institutions use a combination of technical and fundamental analysis to build up an investment case and price targets for financial instruments.

• Trade positioning and sentiment. 

Positioning and sentiment indicators can be technical or fundamental. Some leading and lagging indicators​ can be used to identify stocks that have been overbought or oversold.