One of the most common and important questions asked by beginners in the market is:
“How do I find and pick a stock?”
It Starts with Due Diligence
Research publicly traded companies in a sector you are comfortable with, evaluate their fundamentals, and read through news, events, rules, and regulations that could affect their intermediate and long-term viability (i.e. profitability). Once you make an investment decision stay abreast on developments in the company and sector as a whole by paying attention to geopolitical events, earning reports, and SEC filings.
Platforms for Conducting Research
- Seeking Alpha
- The Motley Fool
- The Street
- Business Insider
At MS Money Moves a lot goes into finding each one of our stock picks from swing trades to long-term holds. An advantage of being part of an investment team is the critical conversations between us considering different perspectives and outcomes. Follow us and you can partake in such discussions, or make connections with other investors on forums like StockTwits, Seeking Alpha, and Yahoo Finance. Your ability to make gainful investment decisions is enhanced when you have others to collaborate with. However, do not trade based on someone else’s opinion or analysis. Always do your own research and come to your own conclusions. Investing any other way will only lead to losing money.
What is Fundamental Analysis?
A consideration of a company’s present and emerging financial health, ability to compete in the marketplace, past and recent material developments, and health of the overall economy. In the biotech sector preclinical and clinical data readouts are very important too. Where do you find all this information? Nearly everything you need to research a company’s fundamentals can be found under investor relations on their website. Here is a breakdown of what you are looking for:
- Form 10-Q: Issued every quarter and contains information pertaining to the company’s finances, overall performance, events and developments, and outlook moving forward. Most 10-Q’s contain a balance sheet and income statement. Additionally, there is information regarding legal proceedings, sales of company stock and assets, exercision of options, and warrant conversions.
- Form 10-K: Issued annually and is a comprehensive report of the company’s finances and overall fundamentals. It should contain all the information needed for an investor to make an informed investment decision.
- Form 8-K: Issued whenever there is an unscheduled material development that affects the company’s performance and is of significant importance to shareholders. For most material developments the company has 4 days to report it in an 8-K.
- Form-4: These are reported anytime a director, officer, or person owning 10% or more of the company’s stock buys or sells shares.
- Short Interest: This is won’t be available on a company’s website. Short interest reflects the number of shares of a company sold short, meaning borrowed and sold with under the condition that they will be returned at a later date (days to cover). An investor sells shares short (shorts the stock) when he or she anticipates a decrease in share price. Short interest is usually expressed as a percentage of the total number of shares available for purchase (the float).
Have a Strategy
In our most recent moves MS has taken a “Swing Trade” approach, in which we identified an oversold and or undervalued stock that should increase in value in the near-term. In the case of ADMP and ACRX we bought prior to catalysts (PDUFA and ADCOM dates respectively) anticipating a recovery from oversold territory. In the Case of GALT we recognized it as being undervalued and oversold after declining over 60% in two months without any negative developments, and it had upcoming catalysts. Getting in tune with your sector and recognizing these types of conditions is a great way to play short term upward momentum. Once we lock in our predetermined goal (price target), we sell. Sometimes we hold a couple hundred shares through a catalytic event. But, typically we prefer to lock in profits and move on.
“We do not marry stocks, we date them.”
For beginners though we think it’s best to stick with completing due diligence, a fundamental analysis, and collaborate with others to identify companies on the path to long-term profitability and growth. Listen and learn from successful investors like Warren Buffett. A quote by him that I often think about and believe those new to the markets could benefit from is:
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”- Warren Buffett
On that note, get out there, do your homework and find a stock to buy! Accumulate as much of that stock as you can so long it remains under or fairly valued, preferably undervalued. Set a price target or profit percentage you’d like to make as a return on your investment and sell once your goal is reached. Rinse and Repeat.
Let’s get it!!!