Trading stocks means you need to make full use of your skills, particularly in the field analysis. Regardless of what kind of trader you are, you need to develop a probing mind. Doing your own research is a must. The following will help you in learning to become your own analyst.
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Looking over analyst reports is one of the best ways to start doing your very own analysis. Doing this will save your time from doing preliminary work.
You also won’t have to blindly heed buy or sell signals that those analysts make. Instead, you can read their research reports and have a quick overview of the company’s performance, strengths and weaknesses, competitors, outlook, and future opportunities.
Also, take a closer look at the forecasts and estimates that explain their reasons for recommending a buy or a sell.
Which Stocks to Analyze
In order to know which stock to analyze or which one is promising, you need to be familiar with the approaches involved in stock analysis.
The top-down analysis is popular among many analysts. This approach starts with the analysis of an industry (the top) and goes down to the bottom to find the winning company.
Equally, others follow the bottom-up approach, which starts with a particular company and goes up to the outlook of the broader industry.
It’s up to you when deciding which approach to follow or if you’re going to make your own order. What’s important is that it flows smoothly.
You can find many publicly available sources of information for nearly any industry. Usually, the annual report of a company provides a good enough overview of the industry, coming along with its future growth outlook.
Meanwhile, annual reports can also give you a good view of the major and minor competitors in a certain industry.
You can try and read two or three annual reports to have a better idea of the company’s current situation.
Strength and Weaknesses
Apart from the industry, your analysis should also cover the company’s strength and weaknesses. Sometimes, companies can be strong but are in a weak industry and vice versa.
You can often check the company’s strengths and weaknesses by looking at its brand identity, products, suppliers, and customers.
Also, don’t forget to check the company’s business model by looking at its annual reports and websites.
Of course, arguably the most important part of analysis is determining the company’s financial strength. If you don’t understand its financials, it will be difficult to think like a real analyst.
Try to understand as much as you can about the balance sheet, cash flow statement, and income statement.
Usually, the numbers in these financial reports are more conclusive than the words written in an annual report.
Last but definitely not the least, management quality is the analysis of how the company is run by its heads. There’s an old adage that says there are no good or bad companies; just good or bad managers.
Key executives are responsible for the company’s performance. Research about the company’s management and board.