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How to Choose Stocks for Investment

A basic overview of potential methods for evaluating a potential stock investment.

Stock investing isn't easy. Even savvy investment professionals can be wrong when picking stocks. The trick - some say - is getting the percentage of right decisions vs. wrong decisions balanced in your favor. Fortunately, online brokers like TradeKing have removed many of the obstacles that formerly stood in the way of retail investors trying to get the right information and make the right stock picks.

Learning To Take Stock Investing Tips with a Pinch of Salt

You'll never run out of stock picks that are suggested by others. Figures in the media constantly bombard you with stock picks they think you should buy, sell or hold. Trading blogs are another form of media where there's no shortage of pundits with something or other to say about the economy, sectors and specific companies.

Frequently, you'll encounter situations in which reputable organizations or well-known investors take opposing views on stock investing strategies with regards to a particular company. When that's the case, common sense dictates one side has to be wrong. After all, a stock can only move in one direction at a time. So rather than merely taking the ideas of others at face value and applying them to your stock market investment strategy, it's better to understand the underlying factors that are driving a particular opinion before you invest online.

Pick Stocks You Understand

Warren Buffet, the CEO and largest shareholder of Berkshire Hathaway, has long remained adamant that he will only invest in businesses he understands. When taking this approach you can be more aware of the risks and the opportunities that could have an impact on a company's performance. It will also allow you to take the insight offered by others' stock picks and let them help you to reach an informed and independent stock investing decision.

Apply Political and Economic Foresight When You Invest Online

Stock investing tips can come in many guises. If you read commentary that suggests political and economic events are likely to occur which may impact a specific stock or sector, you can use this insight to develop a trading strategy. Here are a couple of examples of new items that a stock trader could use to come up with hot stocks and hot trading strategies:

  • If you had come across research in 2006 that suggested rates of defaults on sub-prime mortgages were likely to exceed expectations, then you could go short on banks as part of your stock investing strategy. To hedge your overall risk, you could even choose to short the banking sector, and go long on banks that had less exposure to sub-prime mortgages.
  • If you read an extremely compelling editorial that made you believe that the US dollar was likely to rise against the Euro, you could apply this knowledge to your stock investing strategy. In this example, you might wish to invest in European companies that rely heavily on exports to the US.

Keep in mind, it's likely that most investment professionals will already be aware of the same stock investing picks you are, and the current prices may already reflect these news events. That's why you need to be able to gauge the potency of the factors that are driving these picks, and reach an informed decision on your own accord.

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