How To Choose Stocks

Stock markets are simple to understand in principle, but in practice, there are many pitfalls that can cause investors to lose money. Read on for five tips on how to choose stocks.

Never Just Buy The Stock Market

It might sound counter-intuitive, but it's actually quite common for even experienced investors to buy whatever stocks are in a country's stock market index without looking at each company. Doing this without any further research is not only asking for trouble, but it will cost you money.

Be Aware Of Your Risk Tolerance

The absolute best way to lose all of your investment money is to invest in something that you can't handle if the market goes down. By researching the type of stocks that are available, looking at each company and thinking about how much money you can lose before it would impact your life, you can work out what sort of risk is tolerable.

Look At The Company's Business Prospects

The management and board of any public company will tell you how they're doing and what their plans are. If they don't, that should be a red flag – if a company doesn't want to share information with its investors, it could be a sign that they have something to hide.

Check The Speed Of The Company's Growth

If a business is growing quickly, it will be more profitable. So by finding out how fast a company is growing compared to its competitors, you'll have a better sense of whether or not it's likely to perform well in the future.

Read Financial Statements Carefully

The whole point of finance is that it's possible to understand a company by looking at numbers. So you should always read through the financial statements they publish and look closely at the words they use in their report.