📈How To Understand Any Stock And Start Trading Like A Pro In 1 Minute

When one thinks of stock picking, it is usually individually based in terms of active investing.

The point of active investing is to beat and time the market to earn above average returns.

Unfortunately, this rarely happens and as we’ve witnessed in January of 2021 with the Reddit meme stock saga, no one could’ve predicted that GameStop, a physical video game retailer that sells tangible video games and CDs would surge to a closing price of 347.51 on January 27, 2021 from a 52-week low originally at a price of 2.67 which is 98.7% below the current share price.

Analyzing a stock will help yield massive returns for your portfolio but what’s even more strategic is following a consistent game plan which is based on long term thinking.

Picking stocks like a day trader is tedious, stressful, wastes a lot of time, causes headaches and rarely moves the needle.

The classic advice I wish everyone followed in investing to life is:

“If you’re willing to risk it, expect to loose it.”

The classic motto that messes individual Reddit retail traders on Robinhood or WeBull up is by following the sentiment: high risk = high return.

Although it is still true, when it comes to individual stock picking, not so much.

Yet there are investments such as real estate that consistently outperform the market and ironically offer less risk and more return, except during a once in a lifetime housing crisis.

But even then, if you held onto your property and didn’t sell it past ’09, you would’ve been recession proof and earned massive gains up till today especially during this housing Covid boom. Inventory has been low and prices have skyrocketed.

The median price for a house in the US has been boosted to $334k in a matter of months!

Anyway, enough about housing.

Let’s get into analyzing individual stocks.

Nerd

Only 80% of Americans are invested in the stock market.

These misconceptions they carry prevents them from making more which include:

-Most believe you have to be a genius wizard in math

-Have to have a couple hundred dollars

-Believe they need to spend all day trading and all night analyzing

-Have to do it for a short period of time and then take in all the rewards for the rest of the year

Investing is for every day Americans to become financial literate and boost their earnings + income by investing in companies that can make them money.

Plus, if you get rejected by a firm you always wanted to work for let’s say, Netflix, instead of working 80+ hours for them, they are working for you and making you money as a shareholder!

The stock market is a win win situation plus the best investors don’t touch the markets. No one gets rich off of looking at their trades.

No work and gains?

That’s a good deal.

The Numbs

There are certain metrics that you want to take into account when analyzing a stock.

We won’t even get into growth vs dividend vs. value stocks today but by their name, you can kinda figure out what they mean. Growth means they are defensive and hence, growing, most located in the tech sector, others provide dividends and are stable undervalued companies and value stocks are those which get your bang for your buck and have been in existence for decades.

Value stocks have the best historical performance and reputation. These include Coca Cola, Proctor and Gamble, Johnson & Johnson and Intel to name a few.

Baby Steps Towards Business School

Whether you want to become the next Warren Buffet or not, what is necessary as an individual investor is to get comfortable with financial statements.

I know.

The 10Ks to the shareholder meetings and earnings calls can seem intimating but all they talk about is how the company is progressing, new exciting projects down the pipeline, expectations, pitfalls, what’s missing, possible stock splits, amount of debt and problems they face, etc.

Whenever earnings come out for a publicly traded company every quarter, they must disclose everything about how their finances are performing.

This is one of the downsides to becoming public company, yet it also comes with major perks including:

-Increasing company’s net worth, balance + income statement sheets

-Reducing company’s debt

-Increasing shareholder value

-Stock options for employees to get first bids in a stake in the company

-Become more popular, free marketing through IPO

Downsides:

-Disclose financial information each quarter

-Stock price very volatile and some news can trigger market cap

-Filing for IPO/SPAC is expensive

-Doesn’t always go as anticipated-lots of wasted, time, energy, employees, hassle, etc.

Deep Dive

Each Investor by Type of Stock:

Value investors: Look at a stock’s P/E ratio and their ability to continue paying and raising their dividend.

Growth Investors: Look at a stock’s P/S ratio and focus on the stock’s ability to continue growing their revenue.

Divide Investor: Should consider dividend yield, dividend growth rate and payout ratio-lower the better, EPS(Earnings Per Share) more focused on it

Investors will focus on the P/E ratio. The trailing P/E ratio is based on last year’s EPS while their forward P/E ratio is based on forecasted earnings (in other words, what the company can become).

Value investors tend to lean towards the trailing P/E while growth investors tend to lean towards the forward P/E when making investing decisions.

The best way to compare companies is by industry. If you can compare a company for 3 years in a specific industry, you can match which one is performing better.

Undervalued/Value stocks: P/S or P/B under 1 telltale sign , trailing P/E-based on last year’s EPS not forward earnings

Sites such as Yahoo! Finance to Google Finance and CNBC can get overwhelming.

And if you’re applying for a finance role and the interviewer asks you, “where do you catch up on the finance/business world?” Please don’t say, “I read the Financial Times or the classic Wall Street Journal. “

Barely anyone reads it and it just shows you are lying. No one truly enjoys reading metrics all day long.

Instead, you have a plethora of other options such as:

-CNBC

-Morning Brew

-Investopedia

That can all give you more concise realistic results

These charts and metrics seem overwhelming but understanding where the company’s revenue and earnings streams are coming from are key.

Also drill down to the basics. Before investing, you should invest in yourself. Without a basic understanding of financial literacy, you’re going to turn into the guys on the Reddit Forum digging into debt thinking this is a casino gambling game.

Last Questions to Ask:

-Do you understand or use the products the company offers?

-Do you think it will be successful in the future?

-Is it recession proof (defensive) or very cyclical(when economy is doing well ex. health care during a pandemic) ?

-Why are you investing?

-What emotions and tactics will prevent you from earning?

Having a basic understanding of anything before diving in is crucial to avoiding carless mistakes and turmoil down the road.

There’s no doubt you will loose money but that’s the best lesson in investing anyway.

Stay cautious, keep your emotions at bay and learn as much as you can to base decisions on the fundamentals not social media.