How Can You Find A Good Stock To Buy?
These three characteristics should be the corner stone of every portfolio. If you are looking for a get rich quick approach then you are better off looking somewhere else other than the stock market. If you are a beginning investor following these three characteristics to buy your stock is a good place to start. As the anchor of your portfolio you want a stock that sells real products and services to real customers. You want your company to have “protective moats” as in barriers to entry and d patents.
Famed mutual fund manager Peter Lynch used to say investors should only buy businesses so good that any idiot could run them because sooner or later, one will. The good news is that investors frequently tolerate mismanagement for only so long. The best businesses can withstand a lot of abuse so it can make sense buying into a firm that is poorly run if the core economic engine is intact.
You need to find a stock at a reasonable valuation. The simplest way to do that is to look at the Price/Earnings ratio relative to its competitors or the book value of the company. As a rule of thumb the higher the P/E ratio means the more overprice the stock is. It could take years for the valuation to come back to a reasonable level. It’s up to you to determine whether you are buying low or high.
Read about the importance of reasonable valuations and 2 other great tips.
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About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.