How do I know if a stock is worth my money?
Finding the needle in a haystack
Can you imagine how many publicly traded companies exist? From numerous penny stocks to all the major names and everything in between, there are literally thousands of stocks any trader can buy and sell. So, how does someone sort through all those stocks, narrowing in on the select few that are worth your hard earned money?
That is where “due diligence,” just a fancy word for research, comes into play.
Research strategies are generally broken down into two categories - Fundamental and Technical analysis - where each provides a unique way for a trader to do their due diligence before investing.
How to I know if a company is public?
Finding out a company’s public or private status is as simple as a quick Google search. If you type “is [name of company] publicly traded?” or “[name of company] stock ticker” you should get a ticker if available or a wikipedia page about the founder who kept his or her company private.
There are times you will find a “parent company” owns the specific company you are searching.
Parent companies have ownership in one or more companies, either smaller divisions of a bigger company or a new business through a M&A (merger and acquisition). For example, if you wanted to invest in Pizza Hut you would actually need to buy the parent company Yum! Brands, Inc - owner of Pizza Hut, KFC, and a number of restaurants.
Keep in mind, with parent companies you need to factor in the performance of the whole portfolio, not just the specific company you were originally searching. The other companies the parent company owns can very easily hinder or enhance the overall performance and stock price.
After finding one or more publicly traded stocks you feel might be worth your money, you will need to figure out a non-bias way to compare companies in completely different industries.
That is where “due diligence,” just a fancy word for research, comes into play.
How to “Do Your Due Diligence”
Research strategies are generally broken down into two categories - Fundamental and Technical analysis - where each provides a unique way for a trader to do their due diligence before investing. Though TheChartReaders prefers Technical analysis, there are several instances where a deeper, fundamental, dive into a given company will help solidify any technical assumptions.
Our next article, Fundamental Analysis and Technical Analysis, will be a great starting point before going in depth in our Fundamental Analysis and Technical Analysis specific Knowledge Centers.
