How to Know What Stocks to Buy:  Pick Stocks for the Long-Term

One of the most reliable ways to make money when you invest in stocks is to conduct ample investment research before purchasing and then to hold the most promising stocks long-term.

How to Know What Stocks to Buy: What to Look for in a Stock

1. Establish a Process

If you don’t have an established process for vetting and buying stocks, it’s easy to make rash, emotional purchasing decisions. You might hear about someone else making money on a stock, get a sudden fear of missing out (FOMO), and buy it right before the price drops drastically.

How to Know What Stocks to Buy: What to Look for in a Stock

2. Research the Company Before Engaging in Stock Market Investing

Always research a company and the industry it is in before you invest in stocks. Don’t just trust a “hot tip,” but instead conduct due diligence. An excellent place to start is by reading the company’s most recent annual report.

Evaluate Important Valuation Metrics

Valuation metrics are designed to provide investors with an idea of what a company might be worth. Don’t weigh any metric too heavily, but instead look at the big picture of what a stock’s metrics show.

Evaluate Important Valuation Metrics

1. Price-to-Earnings (P/E) Ratio

The price-to-earnings (P/E) ratio is the ratio of the company’s share price to its earnings per share. You divide the stock price by the stock’s earnings per share.

Evaluate Important Valuation Metrics

2. Price/Earnings-to-Growth (PEG) Ratio

The price/earnings-to-growth (PEG) ratio is a business’s P/E ratio (explained above) divided by its expected growth rate. You can sometimes estimate future growth based on past growth rates.

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