How to Select Good Stocks

Picking good stocks takes time and research.

Picking the right stocks to invest in is a taxing endeavor, since there are literally thousands to choose from. Good stocks are not only those that perform well but also offer dividends as an additional and routine return on your investment.



Good stocks are those that have been around for a while, performing as expected or better than expected. Picking good stocks takes patience and understanding; don't pick them randomly.

Things You'll Need

• Calculator
• File folder
• Financial research by company

Instructions

1. Study the current market. Take notice of which stocks and which sectors of the market are performing better than the market in general. For example, if a stock is up 10 percent and the market in general is up 5 percent, then that stock is performing better than the market in general. Learn which markets exist and which ones you understand.

   Look into stocks of companies you know and understand. Compile a list of your favorite companies.

2. Create a list of companies you have interest in and chart their respective stock prices by date. Keep this list in a notebook and see how the stocks perform during the time you are taking to research all of your stock choices.

3. Read current information on any company that you may be interested in investing in. This includes, at a minimum, the earnings reports or transcripts for the past year. A vast amount of information is available for all publicly traded companies, and it is wise to read up and understand the company in which you plan to invest in. Investing in companies and market sectors that you do not understand makes changes in that market hard to assess.

4. Find a stockbroker to work with or set up your own online trading account. By making this step further down the list helps you resist the urge to jump in and start investing too soon, as knowledge is imperative. Waiting to get an account up and running also gives you extra time to make sure your initial, trial-run picks have performed to your liking.

5. Make your trades and buy stocks in the companies and markets that you understand and feel comfortable with. Refer back to your notebook of initial picks and make actual stock purchases based on your research. Continue to keep additional lists in your notebook of other stocks that you are watching to determine if you will buy those eventually as well.

6. 

   The best investors are those who stay involved.

   Continue to monitor the companies where you have invested and also the ones that you are watching. When prices go up and you have made a profit that you are comfortable with, sell the stock and reinvest the money in a different stock from your potential list that you have been maintaining. Monitoring your holdings will also let you know when a stock has been going down in value; when it does so long enough, you will know when to sell and simply take the loss that comes occasionally with investing in the stock market.

Tips & Warnings

• Resist the urge to buy or sell stocks too fast as stock investing should be viewed as long term and not short term.

• Never invest money that you cannot afford to lose should the market go down.

References

• U.S. Securities and Exchange Commission: Investor Education and Advocacy
• Missouri Secretary of State: Securities--Investor Education