How to be your own Stock Analyst

Nobody tells you to become your own lawyer or doctor, so why should you become your own stock analyst? We will discuss this topic in this article.

Just like some people enjoy cooking, others like Warren Buffett enjoy making investments.

Therefore, if you are a self-reliant investor, you should think about becoming your own stock analyst. With a big question mark on some analysts’ competence, it is always better to understand the basics. Keep on reading to find out how you can think like an analyst.

KEY TAKEAWAYS

• Wall Street often relies on analysts’ calculations to recommend stocks and define their target prices.
• Individual investors can use the same type of fundamental analysis to identify potentially underestimated stocks.

Stock Analysis is a Process

It doesn’t matter if you are an investor looking for value or growth. The first step to thinking like an analyst is to develop a curious attitude. It would be best to find out what to buy or sell at a suitable price. Analysts mainly focus on one industry or sector. Within that particular industry, they focus on the best companies.

An analyst seeks to explore the companies ‘ experiences deeply. They do this by examining their financial statements and other available information. Analysts also investigate the affairs of a company’s suppliers, clients, and rivals to check the facts. Some analysts also choose to visit the company to gain a first-hand understanding of its workings. Slowly, professional analysts connect all the information to get the complete picture of a company.

Before investing, everyone should do their own research. It is always better to explore several stocks in the same industry to analyze. Access to information isn’t always an issue. The biggest constraint is time.

Retail investors with many things to do might not devote as much time as professional analysts. However, they can always take up just one or two companies to test how well they can analyze them. That would help new analysts in understanding the process. With more experience and time, they can expand their stocks list.

What to Analyze

Before arriving at your reliable decision about investing in stocks, you need to understand the different steps in stock analysis. Some analysts start with an industry and then find a winning company. At the same time, others begin with a particular company and then learn about the industry’s outlook. In this case, it is on you to make your order, but the entire process has to go smoothly. Any method of analyzing a stock involves various steps.

Industry Analysis

There is a lot of information available publicly for almost any industry. Often, the company’s annual report gives you an idea of how the industry performed, along with its future growth outlook. You can also subscribe to some magazines and websites specialized in trading.

Business Model Analysis

It would help if you focused on a company’s strengths and weaknesses. You can find a strong company in an industry that seems weak and a weak company in a more robust industry. You can understand its business model from the annual report, magazines, and websites.

The Bottom Line

The main goal of every investor is to make good earnings. However, not every investor or analyst is good at making a profit. We advise you never blindly accept what stock analysts say. Instead, it would be best to ensure you do your own research.