Financial Resource

Article by Arthur Webb

Making good stock picks could either be done directly or indirectly. The indirect way is not picking the stocks yourself at all but instead have other people make the good stock picks. That other people may be your relative, friends, or the bank. If you decide to trust your bank to make the good stock picks, you will generally be invited or offered to invest in their mutual funds. For the novice or beginner, mutual funds are one of the best ways to be acquainted in selecting good stocks to invest in. Basically, a mutual fund is composed of different stocks in which your bank has invested for you. The bank has invested in many different kinds of stocks in order to minimize any potential losses and maximize the profits, as much possible. This process of merging different stocks into one mutual fund is called diversification. Based on the good stock picks of the bank that is included in your mutual funds, one could get an idea on the way how banks choose the best stocks available in the market. Investing in mutual funds is much safer, although the profit or interest might not be as high as you would like.The direct way or picking the good stocks or at least what you think are good stocks by yourself is a little difficult but could be more rewarding. As long you pick the right stock, the returns from one stock could be much higher than investing in mutual funds. Choosing stocks could be a gamble. Let your gut feel the good stock picks or you could do it by using simple methods.In making the good stock picks, we will concentrate on the fundamentals. When people buy a share of stock, they are actually buying a share in the ownership of the business proportionate to the shares bought. As an investor and part of owner of the company, it is your right and responsibility to find out the real value of the stock bought. First, start with the history of the company; what are its products or services; how long is the company in business; and other relevant data that will help you determine if your good stock picks is for the long term or the short term. Every now and then, some company will tickle the fancy of stock traders and investors alike. As a stock investor or trader, you must not let emotion get the better of you. Some simple financial calculations can, at least, give you some idea if the hype of a certain company is warranted. First, determine the company’s price to earnings ratio or the P/E ratio. Take the current price of the share of stock and divide it by the annual earnings per share to determine the P/E ratio. Generally, the higher the P/E ratio, the better is the financial position of the company. Nevertheless, this is not enough, but is a good starting point. You will need to run several calculations first, before you can make your decision in making the good stock picks.

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