Finding what stocks to invest in takes practice, judgment and work. Finding the right stocks to invest in will fill the investor’s portfolio with lasting value. By learning how to do fundamental analysis of promising stocks the investor can identify stocks with long term promise. He can also indentify stocks that a currently priced below what he believes their long term value to be. A low price to earnings ratio is a quick tool for comparing stock price to stock value. A stock with a margin of safety in the form of hard assets will weather many an economic storm. Intrinsic value in the form or solid forward looking earnings will serve the investor well for years to come. What is a good investment will depend on one hand upon the investor’s time horizon and on the other hand on his risk tolerance. A long term investment will be held for at least a year for tax purposes and perhaps for a lifetime. A short term investment can take advantage of the ebb and flow of the business cycle. For the long term finding what stocks to invest in will involve balancing a stock portfolio in order to balance risk and broaden investment opportunity.
Stock screening tools help in finding what stocks to invest in. There are many online as well as private screening programs. The investor can look for penny stocks, low cap stock, mid caps, or large cap stocks. Then he can select market sector, earnings, and level of debt as examples. The computerized program will present him with a list of stocks that fit the screening criteria that he entered. Then the investor needs to decide what is the best investment for my money from among the stocks listed. If the investor is looking for a constant income stream he may want to see dividend stocks that have paid out quarterly every year for decades. If he is looking for a rapid return on investment he may look for a low price to earnings ratio of a stock with a promising new product line. The rationale for investing in such a stock might be that when the rest of the market catches on to how good a stock it is that the price will be bid up and the investor can sell and take his short term profit.
Finding what stocks to invest in, forces the investor to investigate stocks in several market sectors. By doing so he seeks to balance his stock portfolio so that one set of factors will not adversely affect all of his stocks. For example, many stocks in manufacturing or transportation may fall in value as energy prices rise. A big oil stock will typically rise in value as the price of oil goes up. Investing in gold in the form of gold ETFs or gold mining stocks will often help offset the drag on a portfolio from the fall of the value of the dollar during inflationary times. Investing in consumer product companies can help protect a portfolio from the effects of a recession. Finding what stocks to invest in during an economic downturn may be as simple as investing in companies that make toothpaste or investing in beer distributors.