How To Analyse Stocks Before Investing

You open your bank statement, and think to yourself…

“Oh man, I should REALLY start making more money…”

You want to pick up an extra shift or a side gig…

BUT THEN you realized that will eat into your family time.

Suddenly, you remember your colleague Roger talking about his investment returns in the pantry this afternoon.

How you wish you also know how to invest in stocks and get returns like him.

But you need to know how to pick a stock to invest in.

What factors to consider when buying stocks?

As a matter of fact, investing is not as simple as clicking only one button on a screen.

However, that also doesn’t mean that investing cannot be simple.

All you need to know are the right steps to stock analysis before you invest your money

and you will already be on your way.

Here’s our guide to investing in stocks for beginners!

1. Use A Stock Screener

In case you are relatively new to this term, a stock screener refers to a tool which filters and shortlists a set of stocks tailored to your personal stock selection criteria.

Say you are looking to invest in stocks in the New York Stock Exchange (NYSE)…

Say you are searching for a company which gives out consistent dividends…

Say you are particularly specific that this company has to be profitable…

All you need to do is enter all these criteria into a stock screener and a list will be generated for you almost immediately.

And if you are a seasoned investor, you can almost always find a screeners or stock analysis software with more technical filters, like Debt to Equity Ratio and Intrinsic Value

This makes the process of finding the best companies to invest much easier

How To Analyse Stocks Before Investing - Use the WealthPark Screener
Example of Stock Screener on WealthPark

2. Zoom Into The Company of Your Choice

If you are a new investor, this is usually the part where your heart would start to sink.

“I’m terrible with numbers!” you’ll say.

But did you know that a company’s financial numbers should only make up for around 33% of your investing decisions?

The other 67% should comprise of other qualitative factors which is unfortunately, often overlooked by most investors, even the seasoned ones.

If you would like to know how to pick the right stocks, consider using the 3R model the next time you want to invest in a company (and in the following order):


a) Right Business Model

A company with good business model is one that either has a unique product, able to withstand competition or is able to generate consistently increasing earnings for the company.

A company with great business model is one that has all of the above!


b) Right Management

A company can have the most beautiful financial numbers and fantastic business model.

However, if they do not have the right management team to handle the money under their care properly, it is already a major red flag and you should not be investing in them at all.

The right management team is one who has integrity, reports the company’s situation as it is and continues improving the business regardless of how successful they already are.


c) Right Valuation versus Price

The final criteria to look at once a company is set with a good management team and business model, is the company’s intrinsic value / true value as compared to its current share price in the market.

A company whose share price is higher than its intrinsic value, is considered overvalued

whereas a company whose share price is lower than its intrinsic value, is considered undervalued

As an investor, our aim is to find companies that are undervalued, or in simpler terms, companies we can buy at a “discount”.

3. Shortlist and Compare

After looking into the companies that were generated from your screener, you would realize that you prefer some companies over others.

Perhaps they are companies that has a better management team;

or perhaps they companies that you know of personally, because you are using their products.

How To Analyse Stocks Before Investing - how about the peers comparsion
It is always important to check out and compare the competition

In fact, one of the best and easiest ways to select a company to invest in, is to choose companies that we are already familiar with. This concept is also known as Circle of Competence.

You may then compare these companies and downsize your list further to one or two companies.

And voila! You’ve found yourself the best shares to invest in!

4. Invest

And we finally arrive at the grand moment – to actually invest.

In order to start investing, it is important to ensure that you have a brokerage account, and your local trading account with the exchange (In Singapore’s context, it is known as the CDP).

Once you have all of these in place, all you need to do is to give your broker a call or log into your online brokerage account to click on that invest button.

But REMEMBER

It is not only knowing how to pick the right stocks.

When it comes to deciding which companies to invest, it is important to ensure that they fairly priced against its intrinsic value at the time you decide to invest!

Or as Warren Buffett would put it, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

Simple as these steps may be, unfortunately there are still a lot of people out there who do not know how to analyse stocks before investing.

Even worse, there is a big chunk of “investors” who rely solely on tips and hype (things like Best Companies to Invest in 2019) without really understanding the company’s fundamentals.

This is an extremely dangerous practice as it has cost countless people  THEIR ENTIRE FORTUNE in the past.

Little did they realize however, that with the right knowledge and the right tools, their risks would have been massively reduced.

Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author(s) involved in the writing of this piece do not have current vested interest of the company. Please consult a competent professional for expert financial, or other assistance or legal advice.

Yen Hung Chua

Yen Hung Chua

I became an advocate of money management and value investing at the age of 27 for a simple reason. Money management, investing and MOST IMPORTANTLY, emotional stability – was never something that was taught in school. We end up a bunch of workers who are taught to only work for money but not the other way around, and to treat investing like a game of chance. And it was time to change that. Being with WealthPark, not only do I have the opportunity the spread the money-consciousness further and wider, but the platform on its own, is also wickedly useful for anyone who wants to invest in stocks.

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