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How to choose a Stock

2 mins | Beginnner

Summary

You should choose companies that you know and love, that you use every day or that you simply believe in. To help you get there, ask yourself some questions about what industries you're willing to invest in along with what you’re looking for in terms of risk and reward. Finally, when looking at a rough pool of options, do some research into what the company's growth looks like, if its leadership team is effective and whether or not they offer dividends.

This is the most common question we get! Although we’d love to sit here and tell you the top companies, we’d probably be here all day. Plus, it’s not quite that simple. 

Deciding is sometimes more art than science and is far more personal than you might first think. Rather than relying on your gut, the opinion of friends, family or ‘people in the know’, try asking yourself some key questions every time you buy. 

  • Do I think the company and the industry has a strong future, or will it not exist in a few years time?

  • Do I understand enough about the company and the industry that I know what I am buying into? 

  • Does the company match my values, would I even buy their products, or will it do so much damage to the world that I can’t back it? 

  • Does the company have a competitive edge like a unique product, a massive market or a visionary leader?

  • Is it good value?

  • How long do I want to hold onto this company and will I back it through it’s ups and downs? 

  • Is it too risky for me?  

Additionally, do your own research, and find out the answers to these questions;

  • What/are there any trends in earnings growth?

  • What is the company's strength in relation to its peers?

  • Is the Debt-to-equity ratio in line with industry norms?

  • How does the company treat dividends?

  • Is the executive leadership effective?

Tip: Always ask yourself the same questions and try to remember the reasons why you first backed the company. 

Investing involves risk. You aren't guaranteed to make money, and you might lose the money you start with.
Douugh Australia Pty Ltd ABN 76 617 000 138 operates under Douugh Australia Pty Ltd AFS License No. 500063. Although we endeavour to ensure the accuracy of information we provide, we do not accept responsibility of liability for any errors or from any loss from its use. Any information provided is general advice only and has been prepared without considering your objectives, financial situation or needs. We don't provide personalised advice or recommendations. Before making any investment decision you should consider whether it is appropriate for your situation and seek appropriate taxation and legal advice. For more details, see our FSG, Terms of Service and other disclosures.