How to Pick Stocks to Invest in

Picking the right stocks requires careful research and realistic thinking.
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The unfortunate thing about investing in common stock is there are so darn many of them to choose from. However, using a few online tools and applying a skeptical mindset will help you narrow down your choices to stocks you feel comfortable buying. Knowledge is your best ally in choosing good stock investments. If you have experience in a certain industry, stocks in that industry are a good place to start your research. Then consider stocks of industries that perform better during periods when your industry is slow and stocks of synergistic industries. Working from a familiar base will help you form your judgments in reality.

Step 1

Open an account at a reputable online brokerage firm that provides stock screening tools that narrow your search by industry, revenue growth and number of shares outstanding. Make use of research reports and the ability to call an investment specialist to ask questions.

Step 2

Check the interactive trading charts of your selected stocks to determine where they are in their individual market cycles. These charts will show whether the stocks are trading at the high end of their trading ranges. Learn technical analysis of stock charts so you can better identify the stock's price appreciation potential.

Step 3

Read the quarterly and annual reports published by companies you are considering. Question anything that seems too good to be true.

Step 4

Narrow your list of potential stocks to the top few choices and check the charts again to make sure you buy in at a good price. Then move your money into your selected stock in stages over time so you don't dump all your cash into the stock at a price that is temporarily high but average your purchase price over several separate trades.

Step 5

Ignore hot stock tips from friends and the online stock pumpers. If your friend has made a profit in a stock, it may be that the upside run of that stock has played out for the time being. The stock pumpers, who send you emails touting the riches to be had by buying a certain stock, are simply promoting that stock for a customer or to sell a position they own on their trading desks.

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