Keep it Simple Stupid – (KISS)
Do you really have to learn to read charts and learn about fancy terms like “Death Cross” or “Golden Cross” , Elliot Waves – Bollinger Bands…. The answer is no. To be honest I don’t know all this chart reading and terms and I intentionally tune it out. There are literally dozens of financial Metrics to look at a company’s financial well being, Finviz lists 72 of them! The Devil might be in the details but you can sure get lost in them also.
Too much information is as bad as too little information in most cases. In my experience it seems even the experts don’t always see the warning signs of bad companies. Enron comes to mind as an example. This is especially true if a company is intentionally hiding its problems. The metrics are no more accurate than the numbers inputted into their calculations. On the bright side it has also been my experience that there is usually plenty of warning signs before a company goes under. It is usually a long and slow progress with lots of writers and analysis beating the drum to be cautious. Think about it – Unless you are able to go into a company, talk to their accountants and sit in on boardroom meetings you may never know the real picture of what is happening within a company. Think Enron, the company that fool thousands of investors, both individual and the institutional investors. Metrics didn’t show anything wrong because they were all made up !
You do need to learn a few basic terms and indicators like: PE ratios, Dividend, Dividend Yield, EBIT, Cash Flow… But perhaps the most important way to investigate a stock is to read as much as possible from others on a stock before you invest and to keep up with it after you invest. I look at the basic metrics but I also go to financial websites, like, Seeking Alpha, and read as many articles on a company as I can before investing in it. What is the consensus of most writers? And perhaps even more important than the articles themselves what are people in the comment sections saying? If most of the commenters are positive on that stock then it is usually a good bet that you can move safely forward with your acquisition of the stock. A little common sense can go a long way. The fact is we now have tools available to us through the internet and technology that investors of the past could not possibly even dream of. Make sure you make good use of them.
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