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Knowledge is power on Wall Street, and investing pros have the reputation of being the most knowledgeable. Individual investors have many advantages over the big institutional investors — especially the ability to invest with a long-term mentality and to buy out-of-the-way hidden gems. But they can also leverage information to identify some potentially high-flying stocks, too. Here are a few of the best ways for individual investors to research stocks and get a leg up on their professional counterparts, as well as one way they can keep more of those gains.
Often these methods require a little more hustle than just reading the numbers on a screen or balance sheet, but you can also find out more that way than you could otherwise. A stock screener is a great place to begin for investors on the hunt for new ideas. You can find stock screeners at some of the top brokers , but you may want to hunt around for one that fits your exact needs and process best. It may seem like the management teams are off-limits to individual investors, but not always.
Sure, Facebook CEO Mark Zuckerberg is not likely to take your call, but you have a real chance to ask questions at smaller firms, where execs will speak with current or future investors. It can also be helpful to ask a management team which other companies they respect most in the industry and why. This line of questioning can give you a good perspective on which rivals are worth watching — and they may even be worth investing in, too.
Have you heard about a great new restaurant in the area? When you divide earnings by the number of shares available to trade, you get earnings per share. Some companies take those earnings and reinvest them in the business. Others pay them out to shareholders in the form of dividends.
Return on equity ROE and return on assets ROA : Return on equity reveals, in percentage terms, how much profit a company generates with each dollar shareholders have invested.
The equity is shareholder equity. Return on assets shows what percentage of its profits the company generates with each dollar of its assets.
These percentages also tell you something about how efficient the company is at generating profits. Here again, beware of the gotchas. A company can artificially boost return on equity by buying back shares to reduce the shareholder equity denominator. Similarly, taking on more debt — say, loans to increase inventory or finance property — increases the amount in assets used to calculate return on assets.
Learn how to read stock charts and interpret data. Here are some questions to help you screen your potential business partners:. How does the company make money? Does this company have a competitive advantage? Look for something about the business that makes it difficult to imitate, equal or eclipse.
This could be its brand, business model, ability to innovate, research capabilities, patent ownership, operational excellence or superior distribution capabilities, to name a few. How good is the management team?
You can find out a lot about management by reading their words in the transcripts of company conference calls and annual reports. Be wary of boards comprised mainly of company insiders. Investing Best Accounts. Stock Market Basics. Stock Market. Industries to Invest In.
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