In the stock market, buying stocks and shares remains one of the most profitable ways for private individuals to invest money. If the right stocks are selected, a healthy return on investment can be realized that will provide not only an increase in the value of the initial investment but also a regular income through dividend payments. It is important to remember, though, that such an income is by no means guaranteed: stocks and shares are risky investments and their value can fall as well as rise. If a share buyer is to have a chance of avoiding such bad investments, a number of factors must be considered before purchase.
This may sound obvious, but relatively few amateur investors consider this. Are the shares being bought to provide an income? If so, the level of income desired must be determined and the past performance of the shares in question examined to check if such an income level is probable or even possible. With this desired outcome, other considerations such as corporate governance should be less important. Alternatively, shares may be purchased not to provide an income but to provide access to a company’s AGM (Annual General Meeting) in order to question board members: in this case, past or possible future income is irrelevant, and a no more than the minimum of shares necessary to qualify for AGM attendance should be bought.
Once the reason for buying shares has been determined, it is essential that potential stock purchases be researched comprehensively and time is taken to consider the impact of purchase.
Again this appears self-evident, but too many small investors buy on and end up with a diminishing investment due to a lack of research. A variety of factors must be considered, both specific to the company being invested in and external to it. It is important to consider the company’s financial history, Is there any trend in reported profits, Is the share value close to its highest or lowest point over the last year, and if so what are the reasons for this? Are any external factors influencing the share price, such as impending government legislation or imminent changes to the supply of raw materials? These are just a few of the questions that must be addressed when researching stocks to purchase: it is essential that no relevant question is left unanswered as gaps in research could lead to the purchase of shares in a risky company.
Current and past prices and share trading volume can be ascertained from newspapers, websites and the like, while good sources of information on specific companies are the company’s website and annual report: the latter should contain a substantial amount of financial and technical information, though of course it should be borne in mind that such information is likely to be presented in a way that suits the company.
Since if an investment declines in value no-one but the investor and his or her dependents will be affected, it is essential that investors take responsibility for research and to do everything possible to avoid risk: too many amateurs don’t invest wisely and then seek to blame others for a bad investment, when almost without exception the cause is their own lack of research. The key when thinking of buying or selling stocks and shares is to research diligently, and to do so by using as many independent sources of information as possible, whether in the traditional media or on the web.
Joseph T. Collins, an author of this article, is a shares predictor of cl1 oil.