Are you one of those interested in investing in stocks but do not know how to go about selecting which stock. Do you think that selecting stock involves some magic which you will never understand? A lot of people find themselves in this situation but the truth is there is nothing difficult in stock selection. Anybody can do it and I’m going to show you how.
- 1. How well is the company doing?
Before you decide to invest in any stock, the first thing you should ask is if the company is doing well. This goes beyond looking at its profit and loss statement to see if it made a profit. If the company is a manufacturer, go to the market and see how well the products are doing. Is it being sold at a fast rate or it is just sitting on the shelf. Is the product a household name? Do people prefer the product to those of its competitors? All these are pointers to how well the company is doing.
- 2. Take a look at the company’s industry
The state of health of an industry has a direct impact on the profitability of companies in that industry. If an industry is doing well chances are that companies within that industry will be doing well. For example, the textile industry in Nigeria is dead so it will not be a wise decision to invest in the shares of a textile company as they will all be struggling.
- 3. Listen to the news
You will be amazed at the amount of information about companies you can pick up from listening to the news or reading papers. When companies get into trouble or they are breaking new grounds it is bound to get reported. As an example, recently there was a bank audit and the CBN hammer fell on a lot of banks for running foul or banking rules and financial mismanagement. There was a lot of hue and cry but if you remember 5 banks were given a clean bill of health. So for anyone interested in investing in bank stocks, what better way to know which banks to invest in.
- 4. Look at the board members
Take a look at the members of the board of directors. IS the board made up of people of integrity and unquestionable character? Have the board members proven themselves in their respective careers. Chances are that if you have a board made up of such people, the company is one that is managed properly and will most likely be healthy.
- Historical performance
If you can lay your hands on the financial statement of the company please go through it. Has the company being profitable over the last five years (financial statements always show financials of the previous 5 years). If it has been consistently recording profit and better still if the profit has been growing, chances are that barring any unforeseen disaster the company will continue being profitable.
As you can see, there is nothing special or difficult about the steps I have just listed. It can be done by anyone. So there is nothing hindering you from selecting your own stocks, you do not need the so called experts to do so for you. Take that bold step now. Happy investing.
