Treat your Stocks like a Presidential Election

In the process of being a responsible voter one must do their due diligence.  We must check the FACTS. One of my favorite parts of the Presidential debates between Barack Obama and John McCain is the moments after, when the political analysts decipher the arguments that were made and comment on whether the statements were fact or fiction.  I think it would be a great idea if they could check these facts right as they are saying them.  Then if a candidate is exaggerating or misrepresenting the facts a big red light alarm should sound off and the candidate who is misleading the public is immediately called to the table for their actions.

Investing in the stock market can be a lot like the Presidential election process.  Constantly we are hit with a barrage of opinions on what is the next best stock, where the market is heading, and stock rumor tips.  How do we decipher all of this information between fact and fiction?  Well there are three ways to determine a stocks true potential to grow; Fundamentals, Industry, and Technical stock charts or F.I.T.

First, one must determine the Fundamentals of the company.  Are they healthy or not.  A healthy company will show strong earnings both quarterly and yearly.  Sales in the company should also be improving quarterly and annually.  Look for profit margins to be increasing and check to see how efficiently a company is running by checking its Return on Equity.  If you are looking for a healthy company all numbers across the board should be increasing and the higher the percentage the better.  Checking the Fundamentals will tell you Fact from Fiction.

Second, if you are looking for healthy stocks, are they in a healthy industry.  You want to find stocks that are in an industry that is strong and showing demand.  Prior to our recent down turn in the market, Oil, Oil Drillers, Oil Equipment…etc. were all hot industries and any fundamentally sound stock within those industries was sky rocketing.  Why because the industry was in demand.   Find the top stock candidates within an industry that is high in demand.

Third, as both McCain and Obama have stated several times throughout there presidential debates, “check the record”.  Fortunately for us it is much easier to check the record of a stock than a Presidential candidate.  With a stock we can easily view the history of any company on a stock chart.  However, we want to look for signs of a stock chart with a good record.  A healthy stock chart will have prices that continue to rise, going from the left side of the chart to the right.  The stock will show signs of heavy demand as it consistently takes out old high prices and removes them with new price highs.  The stock will also show heavy demand for buying from big money investors who pour money into the stock, thus increasing volume in the stock.  The volume of buyers measures the conviction behind the demand for the price move.  In the volume bars think of volume as a vote for the stock.  When the stock goes up we want to see voters stepping in and driving the stock up.  When the stock declines, we want to see voters avoiding the ballot.

We currently sit amidst one of the most important Presidential Elections of our times.  Both McCain and Obama have set forth their agendas for change. As responsible voters we must do our research so that we can make an informed decision on what change we feel is best.  Learning to invest in the stock market is no different; we must do our own research so that we can make informed and responsible decisions.  Hopefully, understanding how to find F.I.T. Stocks will give you more confidence when you elect that next stock for your portfolio.