How to Invest in Research Stocks

Do you hope to find a company that makes the next breakthrough?

If you invest in research stock, you hope your company is the one that makes the big breakthrough for a major cure or new product that takes the market by storm. When you invest in research stock, you need to have some basic information to make educated selections.

Instructions

1. 

   Decide the type of research you want for your investment dollars. There are multitudes of different types of research. There are broad categories like biotech, alternative energy and technology research or even narrower subcategories. You might even select research into a specific disease.

2. 

   Find the companies in the area you want your money. If you believe that the true next moneymaker is a cure for hemorrhoids, then start doing research to find those companies. A quick way to find some research companies is to use the list of places where UITs (Unit Investment Trusts), ETFs (Exchange Traded Funds) and mutual funds invest their money. Some of them invest in companies that work on specific diseases. Find the list of investments in the UIT, EFT or mutual fund prospectus. Often the companies that create the funds list the information on their website. New Alternative Funds invests in alternative energy and shows its holdings. Also find funds' top holdings on Morningstar. First Trust shows all the holdings of their UITs and EFTs. Just find one for your criteria and click on it. Most online brokerage accounts also have information on ETFs, UITs and mutual funds with the holdings (see Resources below).

3. 

   Look at the price of the share. If a company is an extremely low priced stock in research, you face two risks. The first is that their research won't be successful and the second is the stability of the company. If you find one that is inexpensive, look at the financials to see its history. It may just be a small company and well worth the risk, or if you're not lucky, on the way out to bankruptcy court.

4. 

   Take a risk on a penny stock. If you have extra money that you don't care if you lose, try investing in very small research companies. This doesn't mean you throw caution to the wind and use a dart to pick the stock. Do your research on the stock and find out about the company, the necessity of the product and what strides they made. Look up companies in biotech penny stock, green penny stock and tech research penny stock. Once you buy, don't check it daily. The money fluctuates. Check every couple of weeks for news on the stock. Use the buy and hold strategy for this type of purchase.

5. 

   Investigate large pharmaceutical companies. There are always research projects occurring at the larger companies. Check their history in the area of clinical trials. If they use large research trials that span longer periods, you're less likely to buy a company that later gets sued by those that suffered health problems from the use of their products.

6. 

   Buy a company that is more than a one trick pony. If you invest in research companies over the long-term, find ones that have several projects. Companies diversify this way. Just like your portfolio, diversification help remove some of the risk for companies also.

Tips & Warnings

• Diversify your portfolio and use research stock as a small segment.

Resources

• Morningstar Mutual Fund Page
• First Trust has both UITs and ETFs.
• Scottrade's ETF page
• New Alternative Fund's Top Holdings