How to do research on a company?

How do you research a company for investing?

• I want to get into investing here and there with some money that is going unused. I feel that I have a good grasp on the basis of how to stock market works, but I still do not know how to research a company. What kind of moves in the company warrant an increase in stock? How do I find out about these moves? I have set up a practice account on investopedia.com and would really like to get good at this before I risk my own cash. Any ideas?

• Answer:

  I applaud your decision...you are going about this the correct way IMHO there are many ways to investigate a company and oh so many stocks to choose from....too many as a matter of fact....so from a practical point of view, you must narrow down your search. You have set up a practice account....Have you given yourself any practice money?? I would suggest $100,000 and see what you can do with it. You might say that is unrealistic for you to start....no it isn't...you are practicing...later on you can start for real but you will have experience to fall on. OK....now let us diversify your account by buying 1 - 3 stocks in different sectors and we will have say five sectors to choose from. So simple math says you will spend $20,000/sector This is a very useful website to start your decision making http://finviz.com/screener.ashx It looks complicated but it really is not once you get the hang of it. You have a number of boxes which are drop-down lists giving you choices.....look at the 3rd column at the top...see sector? click on the arrow and look at your choices. Pick one that you like....for example choose "Basic Materials"...click on this and you will see the list of stocks shorten automatically...you now have 594 choices. You can now reduce that number by moving one column over and selection an Industry...click on the down arrow and you will see your choices....say "GOLD" for example. You can see many choices for industry right? In your diversification for this sector you might choose one stock for each of 2 industries...ok? Now we have shortened our list of stocks to 50 in the Basic Materials:Gold now if you have $20,000 to spend on 2 different different stocks in this sector you have $10,000 to spend on Gold (one of your 2 industries in this sector....you want between 1000 to 2000 shares so in the bottom right hand column you see "Price" click on the arrow and select "Under $10"...you now have 30 stocks to choose from. Now...let us move to the top dark grey line where it says "Fundamental"...the the right of "Descriptive(3)" and click on Fundamental... A whole new sheet of choices appear. Let's choose the box in the first column on the left...second from the bottom "Debt/equity" (hover your cursor over this and it will tell you what this measures)...I like companies with low debt...so choose Low when you click on the choices... now you have 19 choices Now we want a company that has a positive "return on investment" (next column in middle) so choose positive from the selection. Now you have 7 stocks to choose from You have a wealth of information on each company....see the OVERVIEW on the left side in the middle? To the left of that box are many more boxes....clicking on each one will give you different info on your seven possibilities...if you hover your cursor over each TICKER you will see a mini-chart of the share price performance Technical analysis is a whole other topic but look at those charts and at your stage choose a stock that is rising and/or been trading sideways for a while....AZK would be a bad choice right now....VGZ or NSU would be better choices with just a glance at this chart and nothing more (it is more complicated than that to choose but baby steps,,,,:) you can do more analysis but let us say for brevity (you can spend hours here looking at stocks...it is great resource and free too!!!) you choose NSU the current price is $6.36/share....you have $10,000 to allocate to this stock so you can buy 10,000/6.36 = 1572 shares....round off the total shares to 1500 shares of NSU (Nevsun Resources) and toss the left over money into the pot for other shares. This is a simple yet effective way for a new trader to decide what company to buy. As you can see you have many many more screening tools to use....as you learn about each one you can play with the screening boxes and see what filters out. Repeat this with another industry in the "Basic Materials" sector and chose another stock....don't forget you have an extra $460 to use on this stock...left over from this last choice. Always buy at least 1000 shares of a stock you make decent money that way...it is play money don't forget....continue for 4 more sectors (you might like to try a $20 stock so you would only choose one stock in that sector)...be disciplined about it and have fun.. One final thing....read....read....read about picking stocks and then test what you have read about on this screener....you will eventually learn the parameters that you find working for you. Hope this helps