How to Research and Choose Internet Stocks

Researching and choosing Internet stocks is much different from traditional stock picking, since you usually do not have much sustained financial performance upon which to base your analysis.

Difficulty: Moderately challenging

Instructions

Things You'll Need:

• Financial Calculator
• Internet Access
• Brokerage Accounts
• Paper And Pencils
• Computers
• Personal Financial Software

1. Determine what your investment objectives are: How much do you want to invest? What return do you want to generate? How long do you want to hold on to the stocks?

2. Identify some companies or industries that interest you.

3. Actively research these industries and companies. Tap into industry publications, Web sites and annual reports if they are available.

4. Look at the competition, both in the physical world and the Internet world. Determine the potential of the companies you are considering.

5. Avoid focusing too much on financial results such as earnings per share. Most Internet companies have poor financial records as a result of high marketing and customer acquisition costs. Focus instead on the growth potential for both the company and its industry.

6. Determine whether the company has any sustainable advantages over its competition, a strong management team, or a strong plan for the future. Is it realistic?

7. Determine the price at which you want to buy the stocks.

8. Place a buy order via your broker or Internet brokerage account, specifying the price at which you want to buy.

9. Monitor your stocks daily after purchase to track their performance and ensure they are performing as you hoped. Keep abreast of company and industry events that might affect your stocks.

Tips & Warnings

• Read current publications and subscribe to online news services that provide you with daily information relating to companies and/or industries of your choosing.
• Focus on the business and the business model, not the hype.
• Diversifying into several stocks can reduce your risk.
• Consider purchasing an Internet mutual fund, rather than individual stocks, to spread your risk.
• Invest in Internet stocks only if you are willing to accept the risk that comes along with them.

on 11/22/2005 Really pay attention to that part about realizing these stocks are risky. I have friends who lose sleep even when their stocks seem to be doing well because they're waiting for the bottom to drop out. If that would be you, choose another kind of stock.