That a company makes a popular product doesn't mean you should automatically buy the stock. There's a lot more you have to know before you invest.
- You have to know if the company is spending its cash wisely or frittering it away.
- You have to know how much it owes to the bank.
- You have to know if the sales are growing, and how fast.
- You have to know how much money it earned in past years, and how much it can expect to earn in the future.
- You have to know if the stock is selling at a fair price, a bargain price, or too high a price.
You have to know if the company is paying a dividend, and if so,
- how much of a dividend, and
- how often it is raised.
People go to graduate school to learn how to read and interpret these numbers, so this is not a subject that can be covered easily in depth for others. The best is to give a glimpse at the basic elements of a company's finances, so you can begin to see how the numbers fit together.
Investing is not an exact science, and no matter how hard you study the numbers and how much you learn about a company's past performance, you can never be sure about its future performance. What will happen tomorrow is always a guess.
- Your job as an investor is to make educated guesses and not blind ones.
- Your job is to pick stocks and not pay too much for them, then to keep watching for good news or bad news coming out of the companies you won.
- You can use your knowledge to keep the risks to a minimum.
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