15 Strategies for Successful Stock Market Investing: Tips to Boost Returns and Reduce Risk
1. Understand how the company will make money, understand:
• What they do
• How they make money
• Why are they important
• Their products
• MOAT/ Strengths/ Positives/ Advantages
• Opportunities/ Growth/ Catalysts
• Downside/ Negatives/ Weaknesses/ Threats/ Risks
2. Financial health is important, understand:
• Healthy Balance Sheet & Income Statement
• Increases in revenue, net income, EPS & profit margins — Quick ratio > 2 to sustain operations
• Positive cash flows from operations
• Investing & Financing Cashflows?
3. CEO, Management Team & Leadership:
• Check Glassdoor & Indeed to learn about the management
• Google the CEO (A CEO with low/ bad ratings is a bad sign)
4. Institutional Sponsorship:
• Are big banks and Wall St. holding?
• How much of this company’s stock do they hold?
• Look at past growth trends in financials
• Look at recent news, 10Q’s, 10Ks, investor presentations, and statements to look for future growth news
• Learn about new products, or a changing landscape
• How will the company scale?
6. Earnings & revenue history. Look at the financials and the projections:
• Was there growth?
• Is there growth potential?
• Have they missed earnings?
• Have they beat earnings?
• Have earnings remained flat or grew consistently?
• Overvalued or Undervalued? (PEG ratio, P/E ratio)
• How do valuations compare to peers & competitors in the industry?
8. Recent News. Google the company and look at recent articles:
• Bad news?
• Good News?
• Any new news?
• What are people saying?
• What is the news saying?
• What are bloggers saying?
• Reasons for recent movement in recent stock price?
9. Insider Trading:
• Is the CEO buying or selling shares?
• Is management buying or selling shares?
10. Peers, competition & competitive landscape:
• How does this company stack up against its competitors & peers?
• How do the financials compare?
• How to the products compare?
• Is there a moat?
11. Price upside, price targets & analysts rating consensus:
• What do the analysts covering the stock think it’s worth?
• What do the analysts covering it, have to say about the price targets?
12. How many different index funds own this stock?
• Will they continue to buy it?
13. Social sentiment:
• Check what people are saying on twitter
• Check google search trends
14. Average volume traded:
• How liquid is the stock?
• How large/small are the bid/ask spreads?
15. Short selling & put/call ratio?
• How much of this stock is sold short?
• Are people betting against this stock? (If so, research why)
What would you add?
*Instead of picking stocks, another option is investing in an S&P 500 index Fund. Index funds have been a great way to build wealth for many, and even Warren Buffett recommends that the everyday person invests in an S&P 500 Index Fund instead of picking individual stocks. To quote Buffet from his annual shareholders meeting in 2020, “In my view, for most people, the best thing to do is to own the S&P 500 index fund.”
The S&P 500 comprises of 500 of America’s largest companies, across all 11 industries, so investing in the S&P 500 is an easy and stress free way to invest for the majority of people, because you’re not betting on a single company but instead, 500 of America’s largest companies.
According to historical records, the average annual return since the S&P 500’s inception in 1926 through today is around 11%, per year. So, for example, if you invested $10,000 in an S&P index fund, and contributed $10,000 a year for 20 years, you would have invested a total of $210,000 cash, but this amount would have grown to $793,274.56 based on the S&P 500’s historical records of an 11% rate of return compounded annually! The power of compounding is one of the greatest tools in wealth creation, and the earlier you start investing, the better. Compound interest can be thought of as “interest on interest”.
Getting started is easy, it’s only 2 steps! Step1 is choosing the S&P 500 index fund that you want to invest in. Step 2 is purchasing shares of that index fund!
$VOO is Vanguard’s S&P 500 Index Fund,
$SWPPX is Schwab’s S&P 500 index fund,
$IVV is Blackrock S&P 500 Index Fund, and
$FNILX is Fidelity’s S&P 500 Index Fund.