Stock Investing 101

90% of the research I do before I invest in a stock is fundamental research. Fundamental research, to me at least, is looking deep into a company and attempting to evaluate whether the company is undervalued, overvalued, or fairly valued.

I use Yahoo Finance to do the bulk of my fundamental research but all the major sites, google finance, cnbc… are pretty much the same so it does not matter too much.

I want to know exactly what a company does. It is not good enough for me to know that yahoo is a website. I want to know how they make their money [selling ads online...] and what environment would be the most conducive to their business.

I like to look at the past 10+ years for a company and make sure that their earnings have grown consistently. It is okay for there to be a few years of mediocre growth, 2008 and 2009 are two years that most companies did not grow, but if the company is not improving its business over the long haul you do not want to tie up any of your hard earned money in it.

I then check out a companies earnings per share and its growth ratio. I like to invest in companies that not only grow consistently, but companies that are fairly cheap compared to what they make yearly.

The number one thing I like to look at before investing in a stock is its balance sheet. Here you can see the companies assets and compare it to their liabilities. A companies balance sheet is even more important for a smaller company because it is still in its growth stage and will need capital to fuel its growth.

A company that has much more assets then liabilities, a company that is cash rich and low in debt, and a company that is growing its business consistently is a company I want to invest in for the long run!