Choosing stocks to be purchased can be a tricky task especially for beginner who knows a little about stocks and stocks market. Before deciding to buy stocks, investors should know how to find good stocks which can give long term benefits for them. Many investors depend only on the number shows by the statistics of the companies’ financial statements. Using quantitative analysis indeed is a good way to know the performance of the companies.
However, it is merely numbers which cannot completely reveal the actual condition happens inside the company.
Therefore, investors should investigate the quality of the companies as well. By using the quantitative and qualitative analysis simultaneously, it may help the investors to find the good stocks. Qualitative analysis may consist of management, business model, competitive advantage, and popular opinion.
Management is the very first factor to be considered as a good company will be run by a good management team.
Investors should find out who on the management team such as CEO, CFO, COO and CIO are. Next, investors should consider about the educational backgrounds and previous experiences. If the team consists of people who have unrelated background to the business, investors have to concern about it whether they will be suitable and can make a good management in the future. Afterward, take a look into their operational philosophy. Some businesses run with a transparent, adaptable and more flexible way while others can be more rigid and tend to valuing policy. The management philosophy can be seen at the annual report’s management, discussion & analysis (MD&A) section.
Business model deals with the company’s ability to generate profits and revenue from operations. Investors have to know about the companies’ activities so that they will know whether the stocks will give profits. It is important to be truly sure about the future of the companies based on the business model.
Competitive advantage is about the growth potential of the company. The significant thing to be considered is whether the company is in the right industry and can be profitable. Promising business often dominate the industry because the entry to the market is hard. It is proved by few companies which dominating their own sector industry, for example Google.
Popular opinion may affect the judging of company since the public opinion can give impacts to the stock’s value. This factor also may give influence to the investors. They believe that a company which has better public opinion has loyal consumers which can ease the company is expanding its operation. Popular opinion sometimes goes along with the popular brand names. Yet, picking a popular brand name is not always a good choice because if there is a bad news regarding that particular name, the stocks’ price will be affected even though it is not related to the company’s performance.