How to Identify the Best Stocks

Kreg Bale
Kreg Bale January 3, 2022
Updated 2022/02/15 at 7:38 AM

Stocks are a fantastic investment opportunity, so long as you can choose the right ones. Although they require an investor to take greater risks, they also promise greater rewards to the savviest stock pickers.

Whether you’re looking for short-term trades that will help you make money quickly, or you’re looking for longer-term picks that can help you slowly build your wealth for retirement, research is essential for trading stocks well.

Today, we’ll discuss some of the things you should keep in mind when trying to identify the best stocks. This includes fundamental vs. technical analysis, why it pays to buy what you know, and why some investors choose to work with professional stock pickers.

We hope this knowledge empowers you to become a gorilla stock trader: someone who understands how to find the very best picks available on the market.

Fundamental vs. Technical Analysis

Research is an essential part of any good stock pick, and there are two major philosophies when it comes to choosing stocks:

  • Fundamental Analysis – This form of analysis considers the business itself, looking into its balance sheet, management, and more to try understanding how much it’s worth. This in turn determines whether it’s a good buy. 
  • Technical Analysis – This form of analysis is more concerned with the numbers, looking at how the share price has evolved over time. Some people believe that fundamentals are already baked into share prices, so it’s more important to look for patterns in the numbers.

While some traders choose to focus on one or the other trading philosophy, it’s often a good idea to keep both in mind. This way, you’re considering all the major aspects of the business and its stock which could influence its price.

Even if you don’t consider both philosophies when making your own trades, being aware of them will help you better understand the decisions of other traders and investors, which in turn has an impact on the prices of the stocks you’re purchasing.

Fundamental Analysis

Fundamental analysis is often preferred by long-term investors, who aren’t as concerned with the day-to-day movements of a stock as they are with a company’s growth over time.

If you want to rely on fundamental analysis, you’ll want to look at the company’s balance sheet. Is it growing year over year? Is it in an industry with a lot of potential for growth?

You’re essentially performing a SWOT analysis, looking for the reasons this business makes sense, as well as the factors that could harm it in the long run.

Technical Analysis

Technical analysis is often preferred by short-term traders, who are hoping to find spikes in a share price that cover any extra trading fees they may incur. This requires looking at past trends in share prices and trying to draw conclusions from that.

Traders who rely on technical analysis often have a strong sense of financials. They’re trying to understand the cycles the business goes through, especially with regard to shareholder interest.

Buy What You Know

Along with all these considerations, it’s also important to consider buying what you know. If you choose stocks in industries you’re already familiar with, you’re more likely to understand and keep up with the factors that are most likely to influence share prices.

For instance, if you worked at different logistics companies for the past 20 years, you’re likely to have a better sense of how the business works. You understand the factors that make a business strong, as well as those which reflect slower, weaker periods.

Investing in stocks is a great way to take this industry knowledge and apply it so that you can improve your financial situation.

Obviously, you want to avoid insider trading, but that term only refers to people who trade with information that isn’t public and could have a significant impact on the stock’s price. Industry knowledge that you’ve gained over the years is different than the certainty that a certain company is about to announce a merger.

Trust the Experts

Feeling overwhelmed with all the stocks available on the market? Many investors trust professionals to handle their portfolios. This makes sense when you consider how much time it can take to keep abreast of various market movements. The professionals are more likely to find the best opportunities.

Finding the right investment advisor is often a matter of understanding how successful they’ve been in the past, as well as getting a better understanding of their investment strategy. While some people ask for investment advice from friends, this isn’t always advisable. Especially if you want that friendship to last!

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