How to choose the right stock

If you have decided to get involved with the stock market, it is important to understand that choosing the right stock, can be a risky process. The reason for this is that it is virtually impossible to determine what makes a stock "hot" and what stock will be the "next big thing". Keep in mind that an investment advisor, can be extremely helpful in guiding you through this process. However, you will want to make sure that whoever you are trusting to help you with this process has lots of experience and is qualified to help you do this.

It is also important to keep a long term view of the stock market. Rarely does someone strike it rich with their first choice of stocks. Many experienced investors still struggle in trying to determine which stocks to invest in. Even experienced investors make mistakes, when it comes to picking stocks. The bottom line is that you want to make sure that you are only making small mistakes, ones that you can easily come back from, learn from and then move on from.

Most experienced stock investors, will tell you that it can take years to make any serious money from the stock market. This means that you must be patient and willing to ride out the inevitable ups and downs of the market. In addition, making sure that you are doing sufficient research to understand the market and the current conditions, will also be crucial to your investing success.

If you are willing to do your homework you can increase your odds that you are choosing the right stock. You must take the time to learn about the business you are wanting to invest in. You should also have a clear understanding of whether or not the business has the long term potential to make money. Another important aspect to research is the type of management that runs the business. You will also need to see all of their financials which you should be able to see in their annual report. Remember that when picking stocks, knowledge is power and the more you know about a potential stock, the more likely you are to pick the right one for you.

Enlisting a professional investment advisor (stock broker) is not a bad idea. However, you want to make sure that you are dealing with someone who is ethical, honest and professional in all of his or her dealings. Be alert to anyone who tells you that you can get extremely high returns with very little risk. This is a red flag and should indicate that you should find someone else to help you manage your investments. Investing on any level carries a certain amount of risk, so you should make sure that you dealing with someone who only has your best financial interests at heart.

The bottom line to choosing a stock, means that you look at some very important factors, before making any buying decisions. These factors include:

• Revenue from the company-You need to take a close look at all of the business' finances. You want to find a business that has overall financial health. When you find a company that looks like it has a long term demand for their product or service, you are looking at a potentially good stock. \


• Debt to income ratio for the company-This is another important factor to look at. Keep in mind that no matter how good a company is, if they have a large amount of debt, they are far more at risk of going bankrupt.


• Liquidity of the company-Financial experts urge finding stocks that have approximately 60% liquidity, as this is a factor for long term healthy stock.