10 Questions to Ask Before You Buy a Stock

what to look for when investing in stocks

DEPOSIT NAME
What to look for when investing in stocks
CATEGORY
Bank
POPULARITY
16/100

Description

As stock market crashes have taught us, a carefree investing style doesn't work forever. Investors can read the quarterly and annual earnings reports to check out how much net income the company reported, in dollars and in per-share earnings. Investors can read the quarterly and annual earnings reports to check out how much net income the company reported, in dollars and in per-share earnings. Later down in this column we'll address ways to mine for red flags in earnings.A quick scan of older news stories and the company's past quarterly statements help answer this question. However, that doesn't mean there aren't plenty of ways to find out about the leadership. Any company worth its salt will have a Web site that lists the senior managers, how long they have been with the company, their background and the company's history. If the company's executive suite has a rotating door, that may not reflect positively on the company's stability. Beyond the company line on the executive suite, investors should research articles about the executives. First off, every company needs to detail the risk factors that may undermine its prospects. Second, the explanations of the company's accounting practices and operating assumptions on matters ranging from depreciation rates on its assets to assumed rate of growth for its pensions tell you a great deal about whether the company is getting too aggressive. Cramer, in his book "Real Money," advises investors to never purchase a stock unless they have an exhaustive knowledge of how they make money. You interview two people. One person has a long history of making people a lot of money. Your friends have seen a big return from this person and you can't find any reason why you shouldn't hand this guy your investment dollars. He has very little experience and, although he seems promising, he doesn't have much of a track record of success. Perhaps, even after all the time you put into finding a stock, you decided that this industry is not right for you. This sort of decision is vital to the art of stock picking since your research has helped prevent a potentially sour investment.