Investing in the stock market is an activity in which information comes first. The more information you have about a stock, the better you can decide whether to buy or sell it. Before investing all your assets in the stock market, it is better to do tasks that most people ignore. Follow us until the end of this article to get acquainted with 10 questions that must be answered before buying stocks.
10 questions to answer before buying stocks
“Some investors do not scrutinize their decisions,” said Brad Barber, a professor at the University of California and author of All That Glitters. He also talks about the impact of the news on the buying behavior of group and individual shareholders. According to him, small shareholders are a large group of buyers who regularly follow the news. The events of the stock market have taught us that investing without care and thought is not profitable. In fact, the success of such investments ends abruptly. “It is better for investors to learn from this and then move on to the next step.”
Given the above, 10 questions and answers are asked for investors before buying stocks. Although knowing all the answers does not guarantee success and success, in the long run, paying attention to these questions will make him a better and more informed investor. Here are 10 questions to answer before buying stocks.
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1- What is the field of activity of the company?
“I do not invest in companies I am not familiar with,” says Warren Buffett. If the biggest investor of the last 60 years has the courage to say he doesn’t know all the companies, we should make him our leader. This is the most fundamental question, but it is not an easy one. To answer this question, you need to get a lot of information from different ways, such as corporate websites.
2- Is the company profitable?
This is also a simple question that can be complicated by differences in company revenue. Investors can check the net income reported in dollars per share by reading the annual and quarterly earnings report. Later in this section, ways to overcome the existing obstacles will be discussed.
3- What is the income history of the company and its outlook?
A quick look at the company’s past news and stories and its status can help us find the answer to this question. Has the company experienced sustainable revenue growth? Is his income unstable? Keep in mind that not all trees go to heaven, if this is a big tech company, can it grow as a young company?
4- How valuable are the company’s shares?
It’s good to find a company that makes a lot of money. But on the other side of the equation are the value for which the market is growing and the prospects for the future. There are several basic ways to determine the value of a company. Ways like income price and selling price fall into this category. These numbers can be easily found on the Internet. Multiple P / E is the best calculation tool. But investors need to consider how much to pay for a share.
5- Who are the company’s competitors?
Companies do not operate in a competitive environment. For every Coca-Cola, there is one Pepsi and many more competitors. Companies are always looking to get business from their competitors. In the meantime, do investors need to know how companies are supported? Does the company have the largest market in its industry? Is it a small company growing in its competitive industry? Is the industry dominated by a company or is it a monopoly industry? Investors should also pay attention to foreign competitors. Where cheaper prices can push profit margins.
6- Who are the managers of the company?
Unlike professional financial managers, not every investor can talk to a company manager or manager before deciding to buy stocks. Of course, this does not mean that there is no way to find the leader of a company or company. Each reputable company publishes a list of partners and managers, how long they have worked with companies, company history and their background on their website. If instability is observed in the executive part of the company, it can be considered as a negative sign of company stability. Beyond the executive line of the company, investors should study and search for articles about the executive group. Commercial publications of any industry provide a good opportunity to inquire about the company.
7- What is the clarity of the company’s balance sheet?
Serious investors who invest for a long time should be able to figure out the company’s balance sheet. Are the company’s debt-to-income ratios compatible? Just looking at the company’s revenue can not give us accurate information about the company’s debts. It can also be useful to obtain information on the amount of funding allocated to research and development. For example, if the development and research sector is developing, it means that the company is in trouble.
8. Have you read the company’s 10-q and 10-k annual reports?
The 10-K report is an annual report that each company must submit to the Securities and Exchange Commission. This report is much more complete than the quarterly reports that companies record in the earnings season. The 10-Q quarterly report is similar to the 10-K, unless required on a monthly basis.
9- Are there any factors that question the honesty and correctness of the company?
In answer to this question, 10-K and 10-Q reports will be useful. First, every company needs to know the details of the threatening factors that may undermine the company’s prospects. The company also provides accounting explanations of the level of importance of its asset depreciation rate and pension growth rate to tell you whether the company is aggressive in its reporting.
10. Are the company’s competitive position sustainable?
Short-term investors looking for short-term gains do not need to answer these questions. But sustainable investors need to find answers to these questions.
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