If you have decided to invest in the stock market, you probably have some significant market research ahead of you. You need to thoroughly understand not only individual companies, but also the industry and national and international climates that those companies operate in to make sound investment decisions. Here are a few good ideas for effective market research.
1. Read the Company Reports
Each company that is publicly traded publishes reports so that investors and potential investors can decide whether the company is a good investment decision. To find a company’s reports, check out the company website and look for a page for investors.
It can be hard to find this page in the main menus. It is often helpful to check the footer menu of the website. Here are a few reports that may be helpful for you.
- 10-K. This form has financial statements that an independent third-party has verified. You’ll be able to find data on the company’s finances for the last 5 years. These reports also contain essential information about how that company earns money and what the risk factors are. You can also read a management discussion about the company.
- 10-Q. Get a company’s financial statements completely unaudited. While this information isn’t as comprehensive as the 10K, it is useful to read discussions from management about the company and under more about marketing risks and any legal proceedings that may be underway.
What Information Should You be Focused on in The Company Reports?
These reports contain an almost overwhelming amount of market research. How do you know what information is important? To some degree, experience is needed to understand what is valuable about the data.
However, there’s some information that anyone will find beneficial in deciding to make an investment decision
- Income. You want to invest in companies that are earning more every day, not losing money over time.
- Price to earnings ratio. This ratio makes a prediction about what the market expects growth to be in the future. Even if a company hasn’t had a high income in the past, if its price-to-earnings ratio is high it may be likely to earn more in the future, which can make it a good investment.
- Return on equity. This number lets you know how a company uses the money that’s invested. Since you’ll be investing money by buying stocks, you want to know that investments go back to the shareholders.
2. Take Time to Understand the Company
You want to understand how a company works, where it makes money, and what it values. Is the company well-established or are they just getting started? Do they have a new idea or are they trying to carve space for themselves in a competitive industry?
How is their leadership? Do they seem like they are aiming for long-term success or a quick buck?
3. Talk to Your Broker Before Making an Investment
No matter how excited you are about conducting your own market research and how fast you’re learning about what works and what doesn’t, it’s not wise to make an investment without talking to your broker.
Brokerage firms offer many more tools to research stocks than what is publicly available. They may have multiple in-depth reports, especially if your broker is focused on macro strategies in their investments.
Just because you’re going through a broker doesn’t mean you can’t be involved in your own investment decisions. Talk with your broker about the stocks that you think are worth investing in and take their opinion seriously about why they think your potential investment is a good or a bad decision.
Get Started With Market Research Today
If you’re ready to start making investments into the stock market and are excited about understanding everything that you can, market research is a great place to start. Whether you already have a broker or you want to do some research on your own before making your investments, market research is a great place to start.