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How to pick a company to invest in

For beginners in the stock market, picking a company to invest in might feel like a very intimidating process. There are so many different companies to choose from and so many factors to consider.

  • How do you know which company to choose from out of thousands of potential investments in the stock market?
  • How do you determine exactly what a company is worth?
  • How do you know if a company will succeed or fail?

My advice is to keep things very simple and focus on three primary factors:

  1. Perform a valuation of the company. Calculate how much money you think a company will earn over its lifetime and discount its earnings to the present.
  2. Checkout what it is selling for in the stock market. How much is the company selling for, compared to your valuation? You should only invest if the market’s valuation is significantly lower than your own.
  3. Evaluate your level of certainty. What kind of industry is the company in? Is the industry fast changing or predictable? How much competition is there? How strong are competitors? Only invest if you are convinced about the company’s future success.

Checkout some other approaches to investing so that you can achieve the best return possible on your hard earned money.

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Motley Fool contributor Motley Fool Staff has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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