4 Things to Know About Every Stock You Buy

Seeing headlines about wild investment successes can make it seem like buying stock is easier than it actually is. With so many people trading, there will obviously be people who get lucky. But it’s a mistake to bank on good fortune — it’s a far more sustainable strategy to research the following four essential things about every stock before you buy. This way, you can move forward confidently knowing that you’ve made a wise investment.

The Company’s Background








Image via Flickr by Semtrio

A company’s background often tells you the most important details about its potential for business growth. This typically includes this information:

  • How long the business has been operating.
  • Its financial history and success year over year.
  • Its short-term growth plans.
  • Milestones that the enterprise has reached and the problems it overcame to get there.
  • Why the business started.

These details give you hard data about how the business has performed. It also lets you know about the company’s philosophy and leadership, which is a priority for many investors.

The amount of information you can find on a company will vary. It also depends on which type of stock you want to buy. For example, if you’re researching options for penny stocks, you’ll find that most companies offering shares for $5 or less don’t have an established financial history.

The Company’s Industry

Some investors choose to specialize in a particular industry and look for businesses to back in that field alone. Others use a wider lens, searching for potential opportunities wherever they’re available. Either way, it’s worth considering the intricacies of an industry to determine whether a business will succeed in that field.

For example, consider the growth of the cannabis industry in light of ongoing legalization and decriminalization trends across the U.S. In your search for the best marijuana stocks, you’d have to keep industry-specific factors in mind, such as:

  • The company’s licensure.
  • The company’s niche — i.e., whether it’s a dispensary, a manufacturer of equipment for dispensaries, or something else.
  • The state where the business operates and the financial projections in that area.
  • Community support for the enterprise — i.e., whether a business is in an area where cannabis use is not only legal but also likely to thrive.

Overall Financial Chart

A chart outlining the company’s overall financial history is easy to read and will tell you a lot about the enterprise. Basically, you want to back a business that’s making money — so, the chart should be steadily increasing from left to right, showing growth over time.

Of course, ups and downs do happen. If you notice a weak quarter, check the company’s background information for details about what went wrong, how the business recovered, and what plans exist for avoiding a repeat of that issue.

The Price-to-Earnings Ratio

The price-to-earnings ratio is a simple calculation that compares a stock’s price to the company’s current earnings. Use this information to compare investment opportunities.

Thoroughly understanding each of these things will let you know whether a company is likely to succeed in the short-term and for years moving forward. Before you ever purchase stock, you should always know a company’s background, the specific constraints of its industry, its investment chart, and its price-to-earnings ratio, among other essential details.


Join our newsletter

If you like Critical Financial, subscribe and get our latest content via email.

Powered by ConvertKit

Share this post:

Recent Posts

Leave a Comment


May the 4th Be with You: Star Wars Swag on Amazon

May the 4th Be With You: Star Wars Day Swag

It began as the punniest holiday ever but quickly grew into an earnest (if somewhat random) celebration of the long-running (and still... more →
People count the money to buy a house in future success.

Avoiding Mortgage Scams: Don’t Fall for Unreasonable Promises

If it sounds too good to be true, it probably is. That’s sound advice for almost all aspects of life, including the search for... more →
Eat for free for a whole month via the meal kit companies discounts for new customers.

How To Get a Month of Free Food: 9 Meal Kit Companies Offering Discounts to New Customers

Play your cards right and you might be able to line up a month’s worth of free meals if you were to try out all nine of the meal... more →
Generate extra cashflow -- here are 97 ways.

96 Awesome Ways to Generate Extra Cashflow

Who doesn’t want more money nowadays? We’ve got you covered on that front. Here comes a long list of different ideas on... more →
Valentine's Day gifts that won't destroy your budget

Valentine’s Day Crafts Are Romantic Rescue from Crazy Inflation

Fall for the hype this week and you’re out an average of $143.56 for Valentine’s Day. Crafts and other do-it-yourself tactics... more →

Ultimate Guide to Bitcoin — FREE Ebook!

Have we got something for you: a free ebook about bitcoin! more →
Get a flu vaccine.

Why You Need To Get a Flu Vaccine Right Now

Flu vaccines aren’t just for the elderly  anymore. Here are 25 reasons you should go get vaccinated. more →
Financially successful

Acquire the Trait All Financially Successful People Have

Financially successful people tend to all have a lot of self-discipline. Improving your discipline in one area of your life often spills... more →

What’s the Best Free Recipe App?

The Apple Store and Google Play together offer more digital cookbooks than you probably have room for on your mobile device. So which... more →
New tax law might slow down housing market.

What Will the New Tax Law Do to the Housing Market?

The new tax law will have a profound impact on the housing market, although in ways that go beyond the deductibility of mortgage interest... more →

4 in 5 Households Will Get a Tax Cut in 2018

Four out of five U.S. households will get a tax cut as a result of the legislation that President Donald Trump signed into law today. more →
Will bitcoin reach $100,000?

When Will Bitcoin Reach $100,000?

Bitcoin has accelerated its pace of appreciation in recent months, and if the current levels between $15,000 and $19,000 make you itch... more →
The Dow Jones topped 24,000 -- now what?

The Dow Jones Crossed the 24,000 Threshold. Now What?

Stocks appear to be increasing in volatility, yet the markets closed on Monday, December 4 with the Dow Jones Industrial Average is... more →
Peer mortgage

Should You Get a Peer-to-Peer Mortgage?

If you can’t get approved for a home loan from a bank, you might want to look into applying for a peer-to-peer mortgage. more →
Investment gifting is awesome.

4 Things To Know Before You Donate an Investment

While donations of any kind are appreciated, gifting investments benefits both the giver and the receiver. Here are four key things... more →
Are you wondering: What's the Relationship Between the Stock Market and Federal Debt?

What’s the Relationship Between the Stock Market and Federal Debt?

Wouldn’t it be wonderful if gains in the stock market could actually reduce U.S. government indebtedness? If that were true,... more →
save money on vacation rentals

How to Negotiate a Summer Home Rental

Are you considering bypassing the hotel or resort experience for your summer vacation and opting for a summer home rental instead? Home... more →