Making intelligent stock selections is a lot easier than making choices that always return high profits. If playing the stock market resembles poker, the techniques being used may not be the right ones. Assuming that the companies in question are honest about their performances, some very simple questions need to be asked.
Growth Business or Stable Business?
An example of a growth company is Microsoft. It started out small and mostly unknown, then blossomed into quite a millionaire-maker. This is by far the exception to the rule. If a company is growing, it will be reflected in their annual reports and other financial documents. The history of the company’s stock price might indicate growth as well, but this is not always a sure thing. The basic principle is to know as much as possible about a company, its history and plans for the future before investing. If all or most of the indicators show growth, the investment will likely return a profit.
Stable businesses can be easily identified by their payment of dividends to stockholders. Investing in the stable company is similar to putting the money into a bank’s Certificate of Deposit (CD). However, the stock could also rise in value. If the stable company is also an industry leader, a rise in stock value will likely happen.
Speculative or Stable Investment?
This is a question that only the investor can answer. What kind of investment is being made, one that has promises for success or one that is as near a safe bet as anything? Perhaps the investment is a little of both. This depends on a lot of variables, but perhaps the most important is the investor’s gut feeling. For example, investing in alternative energy companies can be considered speculative because the market has not yet fully formed. On the other hand, the trend in energy seems to be toward alternatives. How the investor feels about this will have an important impact on the decision.
