Six stock-picking tips to help you be a better investor


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I often get asked for my stock tips and how to know what companies are worth investing in, but the truth is that there is no magic bullet when it comes to the stock market. While not every investment is going to be a winner, understanding what makes something a worthwhile investment can help you build an enviable investment portfolio.

Picking a good stock is often a mix between understanding their financial situation and identifying wider trends that are set to shape the market in the future.

Whether you're a seasoned stock market veteran, or a complete novice, it's always worth refreshing and refining your investing approach. With that in mind, here are six tips to help you become a better investor:

how to pick stocks

1. Know what you want from your investment portfolio

Before making any moves on the stock market, it's important to know what you want to get out of your investments. Everyone has different goals when it comes to investing, so being honest with yourself is crucial. Looking for high short-term returns? You may want to make 'riskier' investments.

Want to start building a long-term nest egg? You may want to consider investing in high-quality bonds.

Setting unrealistic expectations is a recipe for disappointment, so know what you want from your investing experience before you start putting your money where your mouth is. That way, you can be confident in your decision-making and content with the outcome of your investments.

2. Observe what sectors are experiencing change

A changing world means changing fortunes for businesses everywhere. While everyone will recommend different sectors, I would suggest that worth keeping an eye on commodities (especially companies involved in mining, exporting oil, coal, gas and gold), as the world if facing a lack of real resources and rising demand.

And also keep an eye on companies making electric vehicles (EVs), given demand is likely to grow in years to come with governments wants more and more EVs on the road in 10 years.

Being able to spot trends in the market will help you understand how the market's thinking and how the market will think in the near future. World events, government legislation and innovation can all change the fortunes of companies and even entire sectors, so keeping a keen eye on what's going on in the world around you is necessary.

3. Identify companies that will play a key part in pushing their sector forward

Now that you've identified what sectors are changing, take a look at companies that are going to drive the change within those sectors. For example, if you're interested in electric vehicles, then you may want to think about investing in electric car makers like Tesla and VW.

You can also go one step further and consider investing in companies that are mining materials like lithium, aluminium, copper, cobalt and nickel, all of which are used in the manufacturing of electric vehicles.

Keep in mind that the market is always changing and evolving, so identifying these changing sectors early can help maximise the profit you'll make from your investments.

4. Don't put all your eggs in one basket

A diverse stock portfolio is, on average, more likely to succeed over the long-term when compared to a portfolio that only features stocks from the one sector. If you're only investing in a small handful of companies, then one company failing/performing badly can end in disaster.

On the flipside, if you're invested in a myriad of companies from a range of sectors, you're much more likely to be able to withstand changing market conditions.

5. Numbers don't lie - so look at their financials

Before you invest, take a look at the company's public financials and make sure the company has a history of growing its cashflow and earnings. You can use a good platform to quickly and easily determine if a company has been growing its earnings and cash and if these trends are likely to continue.

Looking at such numbers, called 'fundamentals' in the industry, can easily help you understand how the company is performing and manages their accounts.

This is a crucial part of choosing which companies you'll invest in, so don't rush it. If you pick companies with rising cashflow and earnings their shares generally grow. So pay attention here. You don't want to be backing a company that's not gaining business or is going backwards financially. That means your investment might disappear.

6. Think with your head, not your heart

FOMO (fear of missing out) can be a big motivator, especially if you're part of a community that's going all in on a particular stock or sector.

However, if the numbers don't add up and it's not a stock that you would normally invest in (or if you can't see why it's a worthwhile investment), then don't take the leap. Investing with your heart can often end in heartbreak, so make sure you're doing your due diligence before you hand over your hard earned.

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Jessica Amir is a market strategist with trading platform moomoo, a Tencent-backed Nasdaq-listed company committed to reimagining the online share trading experience for Australians through AI-powered innovation. She joined the group with 17 years of experience in markets.  Given she has had the benefit of working as an adviser, market analyst and TV and radio journalist, she knows what investors need to hear. She worked with Saxo, Bell Direct and Sequoia Financial Group (SEQ) in the investment world and held financial advising roles with AMP and CBA. She also worked as a journalist with the likes of ABC, Nine and Sky News Business. She is currently studying Master's of Applied Finance and has a Graduate Diploma in Applied Finance.
Faisal Ahmed
November 15, 2022 2.22pm

Hi Jessica,

Very brief and good analysis, keep up your good work.