When I invest in the stock market, I always have rules/guidelines that I give no exception to. But if you are looking for different things in a stock (like P/E or Volatility) then it is okay to change that one category.
- What I first like to do is use analyst recommendations. I never (almost) invest in a stock with an analyst consensus over 2.50 (1=buy;5=sell). The reason I never make exceptions to this is because, one analyst might be wrong but when you look at stocks they usually have multiple recommendations to even out if one analyst was wrong.
- Next I look at analyst forecasts. I will only buy a stock if the median and the median of the median and the low are in forecasted to rise. The reason I don't look at the low and the high is because these are the highest or lowest ratings they got from an INDIVIDUAL analyst. Now deciding if a stock is right to invest in from an individual analyst is a bad idea because you have the risk of an incorrect pick and you don't have other forecasts to even out that incorrect forecast. This is important to remember, but if you are looking to invest in a stock but only has one recommendation then you MUST do research on your own. (One recommendation is only common in small cap stocks.)
- The next thing I look at in a stock is the P/E and similar trading ratios (but I find PE the most important). I want the PE ratio of a stock no lower than 10.0 and no higher than 25.0. I find in between these two numbers a better investment strength. But if I do look at a stock with a PE ratio at 30.0 or above, I take note of it and invest in it (usually) when it takes a dip.
- Another ratio that I find very important when looking at a stock is the volatility levels. And different volatility levels will be appropriate for different investors but for me I like lower amounts of volatility as I am a more conservative investor.
- Then I look at the EPS and sales of the stock for the past 4 years and the forecasts for the next two. I approve of the stock if it has an EPS growth constantly for 4 years and if the company will continue to grow for the next two years. This is the same thing for the sales. The reason for this is because you always want growth in a company. Because the price of the stock is also determined by the amount of money the stock is making.
As you can see from my point of view is that it is very important to use analyst recommendations in investing in a stock. And also important to read articles on why the stock will go up or down and very important ratios of the stock like the PE and Volatility. Also the financial strength of the stock can be the most important thing and could be the deciding factor if to buy the stock or not. These are recommendations for guidelines for picking a stock but it is important to put more of your own individual rules or change the levels of lets say PE and Volatility. But the most important rule that you must follow is leaving no exceptions to the rules on picking a stock.