5 Simple Metrics a Beginning Investor Can Use to Decide if a Stock is Right to Buy

Look at What you Know

Peter Lynch made famous the “buy what you know” strategy and the principle remains. Begin taking a look at what you might have a passion for or an industry you are familiar with. For example if you are in the field of education, begin by looking into education stocks. If you are tech savvy, begin by looking at tech companies

Use a Stock Screener

stock metricsMy favorite is over at  FINVIZ. You can easily find any result you are looking for by changing the descriptive fields for industry, sector, price per share, etc. It is completely free to use and is usually considered mandatory for all investors. After all, there are tens of thousands of stocks available to trade.

Pay Attention to the World News

Events that occur in the world are not necessarily going to trigger changes in the stock market, but they will trigger people to panic or get excited about possible changes. Thus changes will often occur. Pay attention to news of civil war, violations of sovereignty, dramatically new laws, and the like. Far more impactful though will be direct financial decisions such as those by The United States Federal Reserve. The actions they take, don’t take, or the time they take to make or not make those decisions have a huge impact on the markets!

Dig around Where Others Aren’t

Some of the most popular stocks to trade are those that get talked about the most in the media. They are easy to sell information on because, buy or sell, up or down, they still make the media money by just reporting about them. Thus, you will get information that is not necessarily useful or accurate, just for the sake of getting information. Therefore, I suggest digging in and finding stocks that many people forget. Look for boring companies that do things that aren’t sexy. They may not be hot, but many  companies are highly profitable and pay wonderful dividends!

Keep the P/E Ratio in the Back of your Mind Always

The P/E Ratio (price to earnings ratio) is an important number to keep in mind to realize what you are actually paying for. It’s less useful if you are buying a growth stock, one that is expected to not necessarily realize profits for the sake of growth. Still, P/E ratios can tell you a lot about whether the stock price is inflated or is a bargain.

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