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Stocks are also known to outpace inflation and act as a hedge against it.
But dont pull the trigger on purchasing any stock before youve asked and answered these nineexpert-provided questions.
Also see17 stock perks that will blow your mind.
Do I Understand What the Company Does?
What Is Driving Me To Invest In This Company?
Whats the root of your desire to invest in a particular company?
you gotta know.
Many investors are swayed by stories and ignore fundamentals, Johnson said.
Investors would be wise to take Shillers advice and consider the narrative.
This is how investors become speculators and how speculation is akin to gambling.
What Are the Companys Financials Like?
You dont have to be a seasoned investor to get a thorough understanding of a companys financial situation.
All of this is made public so that prospective investors have all the information they need.
Its like checking a cars engine before you buy, Corona said.
Dont skip this step.
Whats the Stocks Valuation?
you better know any given stocks valuation before you make the move to buy in.
You dont want to pay too much for a stock, no matter how much you like the company.
Comparing these metrics with industry averages gives you a better sense of value.
Who Are the Competitors and Could Those Companies Be Better Investments?
Studying competitors can also help an investor contextualize the opportunity and provide conviction for the original idea.
Many industries use common benchmarks for financial metrics.
Whats the Industry Outlook?
Look attrends and forecastsfor the companys sector, Corona said.
Whos Running the Company?
Strong leadership can make or break a company, Corona said.
Research the management teams track record.
Have they successfully grown other businesses?
Do they have a stake in the company?
CEOs who own stock are often more motivated to see the business succeed.
What Does the Worst-Case Scenario Look Like?
All investing is risky business, no matter how vigilant you are.
Get comfortable with this by asking yourself, What would theworst case scenariofor my investment look like?
Thinking hard about potential risks can help avoid losses, Rogovy said.
For a utility company, this might mean a recession results in atemporarily reduced dividend.
Is This the Best Use of My Capital?
Space in your portfolio is a finite resource, so its best not to waste it on average stocks.
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