Stock Research 1-2-3
There are three basic tools you can use to narrow your research on the companies in which you will ultimately invest:
Stock pages in the financial section of major
newspapers. The Wall Street Journal
is one of the best daily financial newspapers.
To become a stock investor, you should start reading the business section of the daily
newspaper. The financial section generally covers business news, featuring articles on
industries, companies, and economic trends such as inflation, unemployment, and interest
rates. In addition, the business section publishes stock tables summarizing the previous
days trading activities. A typical stock table appears like this:
Using Coke as an example, we can read the table as follows:
Although you dont have to be an accounting major before you invest in stock, you should learn how to read a company annual report, a report written annually about the company's operations. Most companies put their best face on in their annual report, distributing the report to shareholders and the general public on request. You can call, write, or e-mail the company for a copy of the annual report, even though you are not a shareholder. A typical annual report starts with a letter to the shareholders from the chief executive officer (CEO) of the company. In this letter, the CEO highlights the accomplishments, explains difficulties, and lays out future plans for the business. The rest of the report, interspersed with color photos, gives a more detailed discussion of the companys operations.
No matter what the CEO says, the numbers and the financial charts in the report tell a
more realistic story. To help you understand the numbers, click here
to see a financial statement of Lemo, the company that sells lemonade.
Value Line gives a one-page comprehensive analysis on each of its 1,700 companies. Along with statistics going back fifteen years and projections going forward two years, Value Line offers what it calls a "timeliness" rating, how well it thinks the stock will do in the next year, from one to five for each company. Only one hundred stocks receive a "1" rating at any time, the "1" stocks being those that have returned an average of 18.4% from 1980 to 1995. Value Line's "1" companies have outperformed the market represented by the S & P 500 Index (average return of 11%) by a wide margin.
You can find the Value Line Investment Survey in most local libraries. The write up of each of the 1,700 companies along with their industry group is updated every three months. To learn how to use Value Line as a tool in picking stocks, click here.