How to Research Stocks: A Step by Step Guide (Part 2)

Pipscollector.com - Researching stocks involves incorporating multiple sources of information, deduction and strategies, all whilst markets are constantly transforming. Stock traders and investors need to know what information is useful to them as well as the most efficient and accurate way to go about stock research.

Read more: Instructions on how to research stocks (Part 1)

6. Competitor and industry analysis

There are regular instances whereby companies have direct competitors with the same/similar business models. Therefore, it is a good idea for investors to compare and analyse stocks between these competitors to find discrepancies which could further uncover potential investment opportunities.

The same applies to the industry as a whole. Often there are times where a company within an industry outperforms the industry and its competitors, or vice versa. Delving into why these seemingly perplexing patterns may occur can broaden understanding of how a stock or industry behaves under certain conditions.

Competitor and industry analysis are seen as obvious comparisons to make when researching stocks but, it may be prudent to analyse other markets as well. For example, Royal Dutch Shell Plc may do direct competitor analysis against a company such as BP Plc, but another comparison may be to overlay these companies with that of the underlying oil price. This major commodity (oil) is heavily correlated to the business model, therefore looking outside the scope of the equity markets may uncover some valuable insight.

7. Follow industry experts

A great way to further stock research is by following industry experts, such as highly regarded equity analysts. These experts often publish in-depth stock research which can be a good way to draw comparisons between individual and expert analysis. This is also a good way for investors to broaden equity analysis techniques by studying the analyst’s approach and what they look for in making investment decisions.

8. Research platforms and terminals

The use of research platforms and terminals such as Bloomberg can give investors/analysts a plethora of additional analytical tools and techniques. These can help investors with efficiency and access to many other financial markets and stocks for comparative purposes.

Quantitative tools are also available on such platforms for more complex types of analysis. These platforms can be costly, so before investing in one, the investor should make sure to consider the expense factor relative to their expected benefit.

9. Stock order types

After the research has been completed, investors will need to place the order to buy the stock. Knowing how order types work in the stock market can help investors to better focus the execution of their strategies.

Liquidity is another concept that can result in varying spreads and pricing. Stock market liquidity refers to the ease at which the company shares can be bought and solid without experiencing large price fluctuations. Large companies with high liquidity such as Apple Inc will often have tighter spreads with a larger volume of shares available to buy/sell at a given price.

10. Broker fees

An important but often overlooked portion of the stock investment process is that of broker fees or commissions. Brokers have differing fees so investors should become familiar with fees in order to avoid any unwanted surprises. These should be available on the broker website and should be transparent.

HOW TO DO RESEARCH ON STOCKS: KEY TAKEAWAYS

Investors can purchase stocks after doing thorough research; and taking into account as many variables as possible can help the investor to arrive at a more adequate investment decision. This can take many hours of work but sacrificing the time will enable investors to make more informed decisions. Keep in mind the steps outlined above to help streamline the stock research process and employ suitable portfolio management practices.