If you are investing in stocks and shares as a way to grow your personal wealth and/or income then you need to be able to consistently pick the best shares at the right time and minimise your mistakes.
All the best long-term investors, such as Warren Buffett, do their own research before they buy or sell anything.
Indeed, it was Warren Buffett who said…
never invest in a business you cannot understand
Warren Buffett also said…
if a business does well, the stock usually follows
In other words, successful long-term investing is about picking the best businesses and avoiding the bad.
It all sounds very simple doesn’t it?
So why do so many people get it wrong?
How To Pick The Best Businesses
Recognising a good business is not as easy as you might think and this explains why most beginners and opportunity seekers lose more money in the stock market than they make.
If you don’t want to be like them, you need to be able to recognise a good, solid company with long-term investment prospects when you see one and that means knowing what to look for.
You also need to make sound, business-like, investment decisions without letting your emotions trip you up!
Which means following a tried and tested process to make sure that you are covering everything and leaving nothing to chance.
Without this, your stock picking is likely to be hit and miss, driven by your emotions and the opinions of other people instead of the solid factual analysis that you require.
How The Best Investors Pick Better Shares
The best investors, people like Warren Buffett for example, base their investment decisions on solid analysis of the companies they are considering investing in.
So if you want to become a better investor, like Buffett, you need to do your homework properly before you buy and sell your shares.
Listed below are 5 different aspects that you need to do your homework on when you are picking shares for your shares portfolio.
I can’t promise you that you will become the next Warren Buffett, but I can promise you that doing the following 5 things will improve your share picking results and at the end of the article, I’ll tell you where you can get more help!
1. Analyse The Company’s Fundamentals
These refer to the basic information that share investors examine when trying to decide whether a company’s shares are overvalued or undervalued.
2. Analyse The Company’s Latest Results
Examining company results in the form of an annual report is something that many share investors try to avoid because they think it is complicated and a job best reserved for accountants.
The good news is that it is much easier to do if you know what to look for in those results and what to ignore.
3. Analyse The Latest Company News
This can be very useful for getting a feel for what is affecting the company at the moment and what other people’s opinions are about its prospects.
You need to remember though that most people writing the news are doing it for a reason and so it may not be as objective and factual as you might like.
4. Analyse The Economic And Market Trends
Arguably, this is the most difficult area to analyse and it is why Warren Buffett advises “sticking to what you know” when investing.
5. Analyse The Share Price Graph
Analysing the historical share price of a company is a great way to assess your timing and there is a whole subject in itself known as technical chart analysis that goes into this aspect in minute detail.
Putting It All Together
There is no doubt that doing your homework, as I have described here, is key to improving your investment success.
When you get into the habit of doing it properly and consistently, you will not only improve your share picking, but you will time your buys and sells better and make fewer mistakes.
Ultimately, you will achieve bigger returns with your investments than you have hitherto, so why not give it a go?
If you’d like to follow a tried and tested process with detailed checklists of what to analyse then you might want to check out 5-Minute Share Picks.
Otherwise, leave me a comment below about the kinds of things that you like to analyse when you pick your shares or ask me a question you have with regard to improving your share picking.