The most important skill needed in investing is being able to choose the right stock. Right off the bat I used the word investing. I do not trade, I invest. Trading is for people who go bankrupt when the market drops. Investing is for people who make strong returns and do not like commission fees.
Invest in companies, not stocks. Stocks do not accurately represent how well a company is doing. For example, here is a chart of Apple Inc.’s stock price.
It is down. Apple must have performed poorly. Wrong. Apple’s profit increased from $3.5B to $6B. Apple did great, the stock did poorly. Events in the world can effect stocks greatly. Except don’t worry, in the long run, the company’s performance will dominate.
When looking at companies, I compare them to Apple. I look at 5 basic numbers.
1. Revenue- Is the company selling more?
2. Net Income- Is the company making more?
3. Total Assets- Is the physical company growing?
4. Debt- Does the company have any? (If it does, it should be low)
5. C.E.O.’s salary- It better be low
To find the numbers look at the Income Statements and Balance Sheets. For the C.E.O.’s salary, google it.
In the end investing beats trading. And it all starts with choosing the right stock, which actually means: choosing the right company.