9 Research Steps Before You Buy Any Stock

“Buy and homework, not buy and hold.  Without the homework you shouldn’t own individual stocks.”

-Jim Cramer

Step 1: Read the company’s conference call transcript.

Step 2: Perform a simple Earnings x Multiple = Price calculation.

Step 3: Read the financial statements of the company.

Step 4: Read important news articles regarding the company.

Step 5: Read the analyst reports for the company.

Step 6: Ensure that the company does not have high levels of debt.

Step 7: Develop a view on the economy and how it will influence the stock.

Step 8: Perform a risk-reward calculation.

Step 9: Final questions to test your conviction.

What is Buy and Homework?

Buy and hold lets investors be lazy.  It gives investors an excuse to not do the research and work that is required when you manage your own money because of the mistaken belief that if you buy and hold a stock for a long enough time you will make money.  But the only way to know whether a stock is going up or down is to do your homework.  These 9 steps are a simple guide that will hopefully make it easier for investors to conduct their research.  Remember, if you can not commit to doing your research, you should not own individual stocks.

Please send any requests, questions, or commentary to contactbuyandhomework@gmail.com.

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