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Important questions to ask about a stock before buying it – Look before you leap

Important questions to ask about a stock before buying it – Look before you leap

There are many investors who keep from weighing their stock investment decisions before they make it. While the stock investment market is always in the news due to its bullish moves and bearish moves, you have to ensure taking your best foot forward so that you don’t make a small mistake which boomerangs you later on. Individuals usually buy stocks of various companies too often and while this can be good news, it can be bad news as well.

From what we’ve learnt from stock market crashes, adopting a carefree style for investing will not work throughout your life. It will also have an abrupt ending. So, if you’re into stock trading, let’s take a quick look at the questions to ask before buying a stock.

Question #1: What is the main function of the company?

The famous Warren Buffet has always said that it is not advisable to invest in something that you don’t understand. If this great investor is brave to acknowledge that he still doesn’t understand all the companies even after 60 years of experience, you should also pay attention to this advice. Hence, this should be the first question to ask and you can get a worthy answer by taking a look at the website of the company.

Question #2: Is the company lucrative enough?

This is yet another simple question which can be turned complex through different variations on the earnings of the company. Investors can read annual and quarterly earnings to check how much net income and annual earnings the company reports. You have to check this in terms of dollars and per-share earnings. Also watch out for the impending red flags in earnings.

Question #3: What is the outlook and history of the company?

Keep in mind that companies usually don’t operate in a vacuum. Apart from the company in question, there are several other competitors too and companies are always trying to get business from one another. You have to determine whether or not the company you’re buying stocks from have the largest market share in the industry. Is the company a small yet growing niche player which can find its place in the competitive industry? These are few things you need to check about the company before buying its stock.

Question #4: What does the company’s balance sheet look like?

If you are a serious-minded long term investor, you would have to go through the balance sheet of the company before investing in its stock. As against how much the company earns, you should also weigh how much the company is in debt. Only checking the earnings won’t tell whether or not the company is worthy of being invested in. Does the company spend on research and development? What are the levels of inventory?

Once you get the clear-cut answers to the above listed questions, you can take the plunge of investing in the company’s stocks. Make sure you’re aware of the investing dos and don’ts before becoming a seasoned investor.

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About Emma Gilbert

Working in the marketing industry since 2002. This blog is one of my hobbies.

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