So you’ve set-up a share account and now your looking for some insights on how to do your homework and what to invest your hard earned cash into and hopefully it will pay dividends… not in the literal sense!

There’s no exact science to it, especially in these times, these few tips will help you on your way buying into a stock that will provide good returns.

Some basic questions you need to ask about a company.

  • What is it worth? (Market cap)
  • £50m is considered small
  • £50m-£140m small-ish
  • £140m-£450m small-medium
  • Above £450m the company is in the top 350 UK
  • Above £2bn the company is probably in the FTSE 100 Index.
  • What are it’s full year pre-tax profits?
  • Are profits rising?
  • Are dividends rising?
  • Is the outlook positive?
  • Are there any negative things happening?
  • What is the net debt?
  • What kind of dividend does it pay?
  • What does it do and what sector is it in?
  • Are it’s markets likely to improve or get worse?
  • When’s the next statement due?
  • Is the share price on the way up?

You can find the answers to the above on ADVFN use the financials and news, look on Google News or LSE.

Do not become a bottompicker, that’s when you look at graph, see a share is at it’s lowest and buy into it because you think it will come back – there’s usually a very, very good reason why it’s so low! Only use charts as a guide, do your research from the above, charts can’t tell you how a company is performing.

If your satisfied with all the above answers and armed with the facts, you may find a company you want to invest your cash in, so it’s now about finding the right entry price.

One small piece of advice, do your own research, if you have doubts on any of the above questions, then find something else, take everything you read on the share forums with a pinch of salt! afterall, they are only looking after their own interests and will try to either get you to invest or bail on a company – so just to re-iterate DO YOUR OWN RESEARCH!

Here are a few books I’ve read to help me better understand how to trade and how to do my homework first!

Good Luck!