Four questions to ask before investing in stocks

One of the easiest ways to make money is to invest in stocks but it is also one of the simplest ways to lose money if you are not knowledgeable enough. The spurt of several automated trading software like the Q Profit System can reap benefits only if you have some basic understanding of the stock market. To know more about this software, click here.

Here is a list of five of the top questions that you must seek answers for before investing in stocks.

  1. What is the company profile? It is essential to understand the company in which you choose to invest in. What does it do? What goods or services do they deal with? Where are their offices across the globe? What is their main product etc? Even the great Warren Buffett desists from investing in a company he knows nothing about.
  2. How profitable is the company?Go to the company website and read the annual and quarterly income reports of the company to understand the general health of the company. Go through the company history to understand if the company has a steady income and if there is any volatility. Concentrate on the price/earnings ratio which will project the true picture of the company’s financial status and its stature in the market. But a fresh start-up might not have much to offer in this field, in such cases, you must read up financial news on the company and follow the opinion of any of the leading figures in the industry.
  3. Who are the company’s rivals? There are no lone rangers in the world of business. Every company has a competitor, a rival; how significant or how powerful this entity is what will determine the company’s future on the stock exchange. Your focus must be on your company’s market share, and how dominating is its presence. Don’t forget to look at foreign competitors who might have lower production costs and this will affect the profit margins of your company.
  4. 10 K and 10 Q annual reports: It is mandatory for every company to file its annual report with the securities and exchange commission. This report provides an in-depth analysis of the company’s state of affairs. It is also binding on each company to list out all the risks factors and explain the accounting practices followed by the company. The rate of growth and the depreciation rates will give you an idea of what stance the company is taking currently and if there are any red flags that you must be worried about.

Downloading a software and using it to make money is simple but to make money effectively you must understand the working of the stock market.