Picking stocks means researching a company before you invest: looking at how it makes money, how financially healthy it is, whether its share price looks reasonable, and how it fits your own goals and risk tolerance. Following a clear process won't guarantee results, but it helps you make decisions based on information rather than headlines or hunches.
How do you pick stocks?
You pick stocks by following a research process, not by acting on a hot tip or a feeling. Buying a share means owning part of a business, so the starting point is understanding that business. If you're new to the idea, it helps to first understand [What a stock is].
A simple process has four steps:
- Understand the company and how it earns money.
- Check its financial health and growth.
- Judge whether the share price looks reasonable.
- Decide whether it fits your own goals and risk tolerance.
What to look for in a company
When evaluating a stock, most investors look at a company's fundamentals, the basic facts about how the business performs. Key factors to weigh include:
- The business model: what the company sells, who its customers are, and how it makes a profit. If you can't explain it in a sentence or two, that's worth noting.
- Growth: whether revenue (the money a company brings in from sales) and profits have been rising, flat, or falling over several years.
- Profitability: whether the company actually makes money, and how much of each sale it keeps as profit (its profit margin).
- Debt: how much the company owes compared with what it owns or earns. High debt can make a business more vulnerable when conditions get tough.
- Valuation: whether the share price looks reasonable for what the company earns. A common measure is the price-to-earnings ratio (P/E, the share price divided by the company's earnings per share).
- Competitive position: what, if anything, makes the company hard to compete with, such as a strong brand, technology, or scale.
No single number tells the whole story. These factors are most useful when you look at them together and compare them with similar companies in the same sector.
How to research a stock
You research a stock by reading what the company publishes and what independent sources report about it. Listed companies must regularly share financial information, usually in annual reports, quarterly results, and filings with their regulator. These are often found in the "Investor Relations" section of the company's website.
When reading, focus on a few questions: Is revenue growing? Is the company profitable? Is debt rising or falling? What risks does management itself highlight? Financial news and data websites can help with summaries and comparisons, but it's worth checking key figures against the company's own reports.
Remember that a company's past results describe what has already happened. They don't predict what its share price will do next.
Match the stock to your goals
A stock that suits one investor may not suit another, so the final step is checking it against your own situation. Three things to consider:
- Time horizon: how long you plan to stay invested. Share prices can swing sharply in the short term, so investors with longer horizons have more time to ride out downturns.
- Income or growth: some investors look for companies that pay regular dividends, while others focus on companies reinvesting profits to grow. Learn more about [The different types of stocks].
- Risk tolerance: how comfortable you are seeing the value of your investment fall, sometimes significantly.
Being honest with yourself about these points helps you judge whether a particular stock belongs in your portfolio at all.
Why diversification still matters
Even careful research can't remove the risk of investing in a single company. Unexpected events, from management changes to an economic downturn, can affect any business, and you could lose some or all of the money you invest.
That's why many investors spread their money across several companies, sectors, and regions rather than relying on one stock. On Mintos, you can invest in stocks from €1, which makes it possible to build a spread of holdings with smaller amounts. See [How to invest in stocks] to get started.
This article is for educational purposes only and is not investment advice. The value of investments can go down as well as up.