How to Research Stocks: 8 Steps for Beginner Investors


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Concentrated young male freelancer in casual clothes taking notes in notebook while researching his investments on laptop in home office

So your friend just told you about this unbelievable investment idea you must take advantage of! But instead of jumping right into it, here is some sound advice for all beginner investors: There is nothing better than knowing exactly what you put your money into. And for that, you should know what to look for. But how do you research stocks?

In this post, we are looking at 9 easy steps for you as a beginner investor. If you follow these steps, you will have a much better understanding of the company behind the stock, its business model, culture, etc. And perhaps the most important part: You’ll be able to define your investment thesis!

Beginner Investors can use this 8-step framework to research a stock. Find out if a stock and the company behind it is worth your investment. These steps can save you a lot of money! They are designed for long-term investors and will increase the odds of success in the stock market. Take your stock investments to the next level by looking at mission statements, Glassdoor reviews, SEC filings, leadership team, product reviews and financials. Use all information to build your investment thesis.

#1 The Mission Statement

Every company has a mission in this world. Find out what motivates the company to develop their products or provide services. This first step of my How to Research Stocks framework is very important. A good mission statement should be simple, understandable, and concise.

Here are some prominent examples:

Nike“Bring inspiration and innovation to every athlete in the world.”

LinkedIn“To connect the world’s professionals to make them more productive and successful.”

Patagonia“Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”

#2 Glassdoor Reviews

Looking at Glassdoor reviews can reveal very informative details about a company. This is the place where employees go to write about their experiences. Take your time reading what they have to say. Read the positive and the negative. Get an overview of the company culture and the management team.

Glassdoor also provides details about CEO approvals. This can show how highly the employees believe in the company’s mission.

I like researching a company on Glassdoor as it gives you information from close sources. There is a natural bias towards writing more about negative experiences that you should keep in mind though. Looking at the review dates can reveal trends and changes over the years.

#3 Open-Source Code (technology companies only)

Another very specific way to research technology companies is by checking contributions to the open-source community on platforms like GitHub. Sharing code fosters collaboration and showcases a commitment to code quality and innovation.

Source: https://github.com/getsentry/sentry-javascript

I’m a programmer, and let me tell you this: It’s easy to write code that is never shared with anyone outside the company. What’s not easy is sharing, documenting, and maintaining code used by many other companies and individuals outside your company.

#4 SEC Filings

Every company listed in the stock market is legally obligated to file quarterly and annual reports (Q-10 and 10-K Reports). These documents are hard to read for beginner investors. It takes time to know what you should be looking for. But looking at these reports will give you an idea of what you can expect. They are filled with valuable information for investors like you.

To get started, head over to sec.gov and search for the company. For more information, read my detailed guide, “Company Filings: A Must-Read Guide for Investors“.

#5 The Leadership Team

The leadership team of a company carries the vision of that company. They are defining the values of the company and steer the ship. It’s only natural to take a closer look at them.

Understanding their experience and expertise can provide valuable insights into the company’s direction and potential. You can use a company’s website directly or tools like LinkedIn. Another way to research the leadership team is to search for interviews on YouTube or podcasts. You will get insights into their thought processes and compassion.

#6 Product/Service Reviews

Read their reviews if the company provides a physical product or service. What are customers saying about these products or services? Do they like them? Would they like to see changes, and do those changes align with the vision of the company?

Maybe you can even try out their product on your own. This is by far the best way to gain first-hand experience.

#7 Financial Research

Dig into the company’s financial statements and gauge if it moves in the right direction. Does the company have an unusually high debt burden? How does it compare to its competitors?

This process includes looking at a company’s income statement, balance sheet, and cash flow statement. The Harvard Business School has an excellent guide available to get started.

#8 Your Investment Thesis

The final step of this How to Research Stocks framework is to wrap up all the information from the previous steps. Use this information to build your own investment thesis. After doing this much research, you sometimes conclude that you don’t want to invest. Such a conclusion is absolutely ok. After all, your own independent research made you change your mind.

Forming your own investment thesis and writing it down will act as a shield against short-term market fluctuations. When in doubt, come back to your thesis and use the research steps from above to validate it. Sometimes, a thesis you developed might not be valid anymore after a company goes through a change.


Final Thoughts – How to Research Stocks: 8 Steps for Beginner Investors

Investing your own money in a company should never be taken lightly. With the 8 steps in this blog post, you are now equipped with a fantastic framework to greatly increase the odds for success!

No investment into a single company is ever going to be completely risk-free. But your own research is your secret weapon. It’s on you to learn how to use it to your advantage.

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2 responses to “How to Research Stocks: 8 Steps for Beginner Investors”

  1. Melanie O'Brien Avatar

    I think it’s so important to be diligent and do your research.

  2. mpportier Avatar
    mpportier

    That’s very helpful! I want to get into investing and I had no idea how to make some research. That’s a very good place to start! Thanks for sharing!

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MY INVESTMENT PHILOSOPHY

 #1 Buy and hold Stocks for 5+ years
 #2 Have at least 25 Stocks
 #3 Don't overreact on short-term news
 #4 Reinvest into your winners

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