Do you want to know if a stock is worth it or will be in the long run? We thought it might be useful to create a short and practical checklist that provides a fundamental overview of some of the things that successful stock investors look for when searching for companies they want to own. While this do not a guarantee success, in theory any company could have all of these attributes and still go bankrupt due to circumstances — these are a good place to start when trying to identify the productive assets that will yield good results for years to come.
It’s easy to determine how the company makes money
Today’s reality is that many inexperienced investors choose to risk their money buying ownership in a business that they haven’t researched or even understand. It’s important to know how your chosen company generates its profits. You should know the major cost inputs. For instance, if you’re assessing a coffee producer, the cost of beans and other materials is going to matter. If you’re examining a trucking company, the cost of fuel is going to matter.
The company boasts good returns on capital
The capability of a company to generate returns for its owners over a long period of time will be a big factor in its ability to continue doing so. The best businesses have high returns on capital without a lot of borrowed money. They instead have profit-printing machines that churn out cash which the owners can acquire without affecting the core enterprise.
Shares are Priced Sensibly
The reality is that even the best business in the world can be a terrible investment if you pay too much for it. Price is perhaps the important variable in the long-run since even a terrible business bought at a cheap price point can result in continuous wealth accumulation under the right conditions.
The company isn’t fazed by tough stretches
Storms will normally arrive in the economy and the capital markets. These storms often provide no warning before beating up and wreaking havoc on all of our financial lives. One way to lessen this risk is to concentrate on disproportionately choosing businesses that have the financial strength required to survive a dark period without the need to issue stock at severely low prices which, from an economic perspective, can lead to you having to sell off your ownership (stocks) to get out of the situation.
While these types of businesses tend to grow a tad slower or offer a fraction of the excitement you can get from other businesses, you’ll be grateful that you put your trust in them when the storm is raging around you.
There you have it. These basic pointers should be able to point you to the right direction when looking for a stock with good potential. If this is your first time venturing in the stock investment business, you need to ensure that you’re in good hands. Only use services from top brokers to maximise your stock market investment. Doing so will help you get the most out of you hard-earned money and be successful in the world of stock trading. Best of luck!