Investors have a tendency to rush into stocks with very few questions asked. This is opposed to what they should be doing, asking specific stock investing questions to make an informed decision on whether to invest or not. The average investor usually has no thesis for buying a stock aside from the hype being spread on the airwaves. This can be problematic and cause unnecessary losses. Below are the stock investing questions to ask before buying.
- Ask yourself why you are buying the stock? Why do you want to invest in the specific stock. If it is because everyone is talking it up on TV and at the workplace, odds are smart money has been in it for a while and you will be paying a high premium. This means your risk is elevated and it is likely not the right time to buy it.
- How does the stock chart look? Take a glance at the daily stock chart. If the stock is at the 52 week highs, sharply off the lows, be careful. If it is near the 52 week lows, and there is value in the name, it may be worth a shot for an investment.
- What are the earnings and P/E ratio? Late in cycles P/E get higher and more inflated. This usually happens before a dramatic collapse in stocks and the market. Look for quality companies that are trading with a low P/E early in an economic expansion cycle.
- Avoid the hype. Never rush into a stock because your best friend who works at the pizza shop tells you its a great play. Never investor in a stock if you hear the stock being pumped on CNBC or Fox Business. The time to invest is when no one is talking about it.
- Be smart, look for companies in an up and coming area of the market. Maybe a new technology like AI.
- Find stocks that pay quality dividends for a long time. This can protect you. If a stock is pays a 3% dividend but the stock price falls, at least that 3% dividend offsets some of your loss or maybe all of it.
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