Time to walk through the stock selection process so you can pick a stock.
If you haven’t already, open a free practice stock trading account . You’ll have to create a login to sign in then you can start practicing investing!
Remember the 3 step stock picking process?
1) Look at companies in industries that interest you
2) Check out their future prospects
3) Look at their numbers
Today I’m going to use the company that is behind the number one used online service. You probably used it today. No, it’s not Facebook.
Facebook is a private company (at the moment) do not have publicly traded shares.
It’s Google. Their ticker symbol is GOOG. I’m interested in learning about the company that helps me find information everyday. You can read more about them in a book called The Google Way.
I am not endorsing or recommending the purchase or sale of Google’s shares and at the time of this posting I do not own any Google shares.
To check out Google’s future prospects I first try to learn as much as I can about what they do now. I know they operate a large search engine but do they do anything else? Here’s where the reading comes in.
There is something called an annual report a.k.a. 10-K that the Securities and Exchange Commission requires from publicly traded companies. If you go to the website and click on ‘About Google’ then ‘Company Info’, you will be directed to their corporate webpage. The ‘Investor Relations’ page is where you can find most of the information you need. Explore that page to get a better idea of the company you are interested in. I also created a video for how to find an annual report.
The annual report will give you a good overview of all the business that Google controls. It may seems like a lot to read but an informed investor is the best investor. They will also talk about what they plan to do in the future. Now you have an idea of how they build and maintain their business and you can better judge how they will continue to operate in the future.
Finally, if you are still interested in Google as an investment, you can check out their numbers. Remember the Investment Proposal sheet I introduced last time? It’s time to fill it out and make a final decision.
Here’s an example:
Instead of doing a line by line analysis of the numbers I am going to interpret them in a short paragraph. You can follow along with me with the full page.Google is a global company. They are a technology company that focuses on information delivered through the internet. They are relatively as risky as the market with a beta of 1.14 and the current price is in between the yearly high and low. They are a large company with a market cap in the billions.
They do not pay a dividend so I will look to make a profit by selling the stock at a higher price than what I bought in at. The price is about 24 times what I could claim in earnings. The P/E ratio tells me that I’m either paying too much for the stock or there is a chance I can make lots more. The PEG ratio is relatively low compared to the P/E ratio. This tells me that other investors see much more growth at the current stock price. So it could be undervalued.
Now all I have to do is decide whether or not I want to buy.
Does all this seem like too much effort? Well if you don’t have the time then there are 2 other ways to get your fill of stock investing, ETFs and Mutual Funds.
A mutual fund is a collection of stocks picked by its manager. There are closed-end and open-end funds. One allows investors to join whenever while the other limits the number of investors. Some are load or no-load. That just refers to the fee to invest. (In other words, the cost of someone else doing the work for you.)
An ETF is an exchange traded fund. It’s basically a mutual fund that trades like a stock. The price to purchase this fund will change throughout the day as it is bought and sold. There are many different ETFs and you can choose one based on your interests or a particular industry like real estate.
So get started picking some money makers and start growing your portfolio for your own financial success!
Looking to choose your own stocks? See why I recommend Scottrade.
Ready to start investing the easy way? Get started with Betterment. Betterment is an online broker that invests for you. All you have to do is open an account. Each time you deposit, they automatically purchase a basket of ETFs for you based on your personal risk preferences.