By: Skylar Hammond
Researching stocks has always been an essential part of investing and trading. However, in uncertain and fickle economic times, such as these, it’s extremely important. 2020 has been a rocky year for the stock market, leaving many investors and analysts scratching their heads and reevaluating their investment strategies.
Here’s the thing. While it seems like everything has radically changed, your approach to stock research should remain the same. Vigilance is key. The main difference now is that there are more external and uncontrollable factors at play (looking at you COVID).
Researching stocks in 2020 is about being even more thorough than you were before and taking every minuscule external detail into account before buying, selling, or trading anything.
Let’s break down the best practices for stock researching in 2020, so that you can confidentially continue to expand your investment portfolio.
The Mainstay Steps for Stock Evaluation
Take yourself out of 2020 for a minute and get back to the basics of researching stocks. Clear away any clutter and paranoia that you have surrounding these uncertain financial times. Choosing stocks can be as straightforward as any other time. It all boils down to picking a stock you like and evaluating it.
Here are the four basic steps for researching any stock:
You’ve picked the company and stock that you’re interested in, so now you need to gather their important financial information and data. These companies are required to file several documents with the SEC, and if you have the time, you’ll want to get and digest a couple of them.
Get their Form 10-K and their Form 10-Q. (These forms are lengthy, and sometimes a little hard to digest, so you can often get simplified versions of this data from your brokerage firm’s website.)
What numbers are you looking for in these financial reports? Here are the essential ones to take note of:
All these numbers are essential to painting the overall numerical and quantitative picture of any potential stock.
Once you have the numbers, it’s time to look at the less technical components of the company. This step is all about looking at the reasons why this company is worthy of your investment. Ask yourself questions like:
The most vital part of this step is identifying whether or not they’re a winning company. Identify why you feel compelled to invest in them. Take into account psychological, human, and societal factors here. This isn’t about the numbers – it’s about identifying the intangible qualities that separate winning stocks from losing ones.
Once you’ve gathered all your research, it’s time to contextualize it. Now, look at the company’s historical data and performance. Compare their numbers and data to others in their sector. How do they compare? Are they above sector-averages financially? How do they historically treat their shareholders?
Then, put all that research inside the context of 2020, COVID-19, global and political predictions, and see how it shakes up.
Additional Stock Research Tips for 2020
After you’ve finished the four steps, you should be able to assess the stability and potential for any stock. While there are some unknowns, the principles behind stock research remain the same.
While there’s no surefire security in times of economic uncertainty, there are some industries that most analysts agree are safer than others. These include:
Within these industries, look for stocks that have balanced sheets, decent cash flow, and a history of healthy payouts to shareholders. For extra safety, consider large-cap stocks and look for dividend aristocrats, who are known to increase dividend payments every year for their stockholders.
Ultimately, 2020 is no different than any other year in investing. If you do your due diligence, listen to the analysts, and don’t take any significant risks, you have as much risk and reward as any other year.
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Skylar Hammond is a writer for True Trader who specializes in topics such as stock trading, personal finance, and forex. He focuses on helping beginners and experts alike learn more about the market and improve their trading skills.
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