There are many aspects involved in analysing a company before buying stocks. Financial statements, different metrics, price, etc. It’s not easy to value a company with so many things to consider and deciding where to invest can feel like a gamble. Especially when you add emotion and the short-term decisions that tend to come with the ups and down of the market. That is why I recommend having a strategy that works for you and sticking to it. Remember that unless you are a trader or an experienced investor, stock market investing is a long-term game.
I don’t think you need to pick stocks like Warren Buffet to be able to get a nice return on your portfolio. In fact, if you are not interested in looking at financial statements and stock market metrics you are probably better off having the bulk of your investments in index funds. You will likely still earn a decent return.
However, I personally like to look at balance sheets, metrics and do my own research (at my own risk!). I just like to own shares and get dividends in my bank account 🙂 I do look at numbers when I’m doing my research, but those are not the only things I look at.
Here I share with you 5 things to consider before buying stocks that are NOT metrics or numbers
Consider the segment the company is in. Do you believe the sector is growing? Why? Don’t consider only your opinion, but do your research, Google it, speak to people. You might be surprised to hear different opinions and even change your mind.
For example the tobacco industry seems to be diminishing each year. Not considering other factors (like health) I wouldn’t invest in a tobacco company as I invest for the long term. An industry that might be growing is freight & delivery, with the growth of ecommerce and companies like Amazon. Also consider what industries are growing in your specific region.
Another aspect to consider is the economy in which a business is inserted. It’s becoming increasingly easier to invest in companies all over the world and local economies must be taken into account when making an investing decision.
Consider not only the current market, but also the potential a company might have in the long term. For example, a manufacturer in China will likely have different potential from a manufacturer in Greece. Manufacturers in China will probably be able to handle larger volume operations at a lower cost.
Potential market share growth.
Look at the potential market share growth of a company. Perhaps a company is doing well and growing each year, but the market might be small or other players might be very hard to compete with. It can be easy to look an industry as a “billion dollar industry” and forget to consider what share of that market a company can realistically achieve.
Consider previous and current revenue as well as forecasts when considering potential market growth. Remember that growth should come together with increase in revenue and profitability. Also look at the strategies a company is using and other factors (laws, government, etc) that might impact the growth.
Another aspect to consider is the management of a company. Who are the main leaders? Is the company founder-led?
Consider if the management is committed to best practices and doing a good job. Usually you can see this when you look the growth and profitability of a company.
I hope this post has been useful to you. What else do you take into account when buying stocks apart from different metrics? Let me know in the comments 🙂