The Beginner’s Guide for Choosing Stocks

So, you have decided that you want to invest in stocks. You have $1000+ that available to invest in the market. Where do you start? In this article, we will cover the attitude of the value investor, key metrics to pay attention to when analyzing stocks and some basic financial statement analysis.

The Value Investor

If you are new to the stock market and you don’t have a background in finance, you should aim to be a Value Investor. From its namesake, you can probably determine that as a Value Investor, you are searching for the best value out of the stocks that you purchase. As a Value Investor, you are not simply buying stocks for trends, rather, you are looking at companies with a magnifying glass to determine how valuable they are. Value investors want to purchase great stocks from great companies at prices cheaper than their intrinsic value (how much their stock should be worth according to the actual business, not necessarily the price that the stock is listed for on the market).

Value investors tend to have very good control over their emotions and they do not respond solely to the pricing of the market. This means, Value Investors are comfortable when their stocks are doing well and when they are losing money. Typically, Value Investors are looking to invest along a long term investment horizon.  This means they are not looking to sell their stock within 6 months, these investors are playing the long game and are betting on the business’ future success.  Thus, in order to make the best investment decisions, a Value Investor analyzes a company’s business model, management team and financials before making an investment. As an aspiring value investor, your evaluation of a company needs to be rigorous and thorough.

Lastly, Value Investors are safe investors. They do not put all their eggs into one basket. They spread their money across different industries, assets and companies to mitigate risk. This is known as diversification. We can think practically for why this makes sense: Let’s say you were investing in 2007-2008 and all your investments were in financial stocks. You would have lost a considerable amount of your invested capital in practically every stock you invested in because the entire financial industry was not doing well due to the financial crisis. Thus, the Value Investor will invest in different sectors, and companies in an attempt to create uncorrelated returns. Put simply, you want a portfolio in which Company A’s stock value could fall but that doesn’t necessarily mean Company B’s would fall as well. i.e.: uncorrelated.

Now that you know what a Value Investor is, we can talk about the process that a Value Investor may undergo before investing in a company. To make this more practical, we will use a public company that everyone knows, Nike, Inc.

The rest of this investment guide takes beginners through a company case study in which we analyze, Nike, Inc. We look at practical examples and actual data that will help the novice investor understand how to read financial charts, what financial ratios mean and how they are used and more! The rest of this investment guide is available for purchase of $20.00. Email me directly to request your copy : derny.fleurima@gmail.com