Selecting stocks is challenging even for the experienced investor. Every investor, from the novice to the pro, has the same goal—make money. A goal is nothing, however, without a system, a set of rules that leads towards that goal. The following are four such rules for investing.
The Golden Rules for Choosing Stocks
- Shows steady growth – When you look at the financial report of the company, they should show strong and steady growth. Steady meaning over the course of a substantial period time—the longer the better.
- Has little debt – Having debt generally limits a company’s growth. More debt means that more of a company’s earnings are being spent towards that debt. In determining how much debt is too much debt, the best way is to compare that company to its peers in the same industry.
- Pays dividends – Dividends are great because they provide a source of regular income for shareholders. Perhaps more invaluably, they are a telltale sign that a company is in good financial health. Dividends can signal a sense of certainty amongst the uncertain terrain of stocks.
- Start with what you know – If you aren’t even familiar with the company that you’re investing in, buying stocks becomes a game of roulette. By choosing a brand you know and trust, you gain a framework to place their earnings report within. Plus, nearly every one of the best performing stocks in history was a ubiquitous brand.
No stock is guaranteed to make you money. When you buy stock, you are becoming a partial owner of that company. The value of your investment is tied to the financial health of the company you invested in. By following the rules above, you can at least rest assured that the odds are ever in your favor.
The rules provided here are only guidelines are not a substitute for legal advice. Garland & Mason, LLC is a New Jersey business law firm with professionals eager to help you reach your financial goals.