What stock traders need to know about a company before investing?

The stock market is no accessible realm to find success in. Many “day traders” quickly lose money by making hasty or uninformed decisions. Successful investors know the bare minimum required before they buy shares of a company’s stock.

What industry the company is in

Investors should know the industry their target company is in. Knowing the industry helps investors decide how well they think a specific business will do and whether it’s an attractive opportunity for them to invest in.

 

Has this industry been growing lately? Is it profitable? Can the company sustain its good performance in this industry over time? What is the growth rate of the industry on an average per year basis?

 

For example, a company that makes romantic games for mobile devices may not do well in a strictly business-oriented industry. Likewise, a scientist trying to sell her research paper might have trouble selling it to a car magazine.

How many employees work at the company

Investors must also know how many employees work for their target company. More employees mean higher operating costs and larger headcounts when hiring additional workers or managers/executives. When considering buying shares in a specific business, investors must also estimate their future costs. For example, suppose a business has 100 employees and needs another ten workers to create more products or provide better service. In that case, investors must, on some level, be willing to pay for those additional ten workers.

Owners or founders of the company? What are their experiences?

Investors need to know who is running the business they want to invest in. The reasons for this are simple yet often overlooked: successful CEOs and owners have already made tough decisions about customer service, marketing strategies, hiring talented employees, etc. If an investor wants to see consistent results with his investments over time, he will need to find companies run by seasoned executives/presidents. Not only that, experienced leaders can help investors better predict what might happen if some unexpected event occurs that affects the company’s performance (i.e., wars breaking out somewhere that deeply affect a specific industry). For example, suppose the leader of a business has experience in domestic and international business. In that case, he might better know how to deal with international relations if a war suddenly breaks out, hurting the company’s ability to do well in one specific country.

 

Investors must also not overlook corporate records such as stockholder meetings, annual executive meeting minutes, etc. The more information investors have regarding the owners and executives of a company, the better prepared they will be when making investment decisions.

What catalysts could cause the share price to rise/fall over time?

As it turns out (and many investors may not realize this), market prices don’t simply rise and fall at random: they reflect past performance figures and potential future earnings in addition to investor sentiment behind a particular investment. If you want good investment opportunities, you need to think about why investors have been buying a specific stock in the past and what they expect from it going forward.

 

For example, a company’s market price may rise rapidly if a known investor starts purchasing large amounts of shares in it. Why would an investor do that? They’re hoping for future growth from this business, so they now want to own more shares while they’re cheap. If other investors notice increased interest from the first investor, then others will feel confident investing in the same business, which can cause share prices to rise even higher. You could say that one person “pushed” up the market price by buying lots of shares, while another investor “pulled” it up by convincing others to purchase shares.

 

A company’s market price may fall if several major retailers suddenly stop carrying the company’s most popular product line. Why would they do that? They’re not getting as many orders from their customers for this particular product, meaning it probably won’t be as profitable for them to carry it. If other retailers see lower sales figures, they might also decide not to purchase and re-sell this line of products either, which could cause even more lost business and a further drop in share prices.