How to Determine if a Stock is Worth Purchasing
With over 3,000 stocks in the market, how do you know when to buy?
In today’s video, I’m giving away three simple strategies I use to determine if a stock is worth purchasing and why.
And by following these three simple steps, you’ll be able to separate the winners from the losers.
When choosing a stock, pay attention to the following…
1. Consider Timing
When purchasing a stock, always calculate your maximum risk.
Let’s say a stock experiences terrible news… where’s your stop loss and where are you going to sell it at?
The next thing you should consider is what’s the time horizon on the trade? Do you want to hold the stock for years? Is it part of your 401k or retirement plan? Or are you going to buy the stock for the next two to four weeks?
Is it a swing trade? Is it something short dated?
Then put your size accordingly… and if it’s a long position, you can scale into the position over a longer period of time.
In other words, you don’t have to put all of your eggs into one basket. If it’s a short term trade, then put the appropriate amount of capital that you feel is necessary or that you feel like risking on that short-term trade.
2. Look at the Sector
If you’re purchasing a stock, let’s say it’s in the healthcare sector, then you’ll want to see what the other or similar names within the healthcare sector are doing because chances are… the stock that you’re buying is going to move with the overall sector.
For example, let’s assume that you’re buying a pharmaceutical stock like Pfizer (PFE), the world’s premier biopharmaceutical company.
And what you should be asking yourself is what are the other names within the same sector are doing… What is Merck (MRK)? What is Novan (NOVN)? What is Teva Pharmaceutical (TEVA).
3. Overall Sentiment
Why are you purchasing this stock? Are you buying this stock because you heard about it on TV or because you did your own research?
As traders, we want to look at companies that have either:
- New management or leadership.
- Does management have a vision or are they ahead of the curve via technology?
Now, if you follow these three keys – time, sector, and management, then you’ll have a greater chance of staying on track with smart money.
You’ll have an advantage and your account will thank you.
Lance Ippolito
The Future of Wealth
