Selecting stocks can be a challenge for the average investor. It involves a lot of science, requires certain amount of experience and needs a bit of luck. At Financial.org, we advocate a two-step approach methodology, similar technique used by most fund managers, stock market analysts and experts today. In fact, Mr. Warren Buffett utilizes a similar approach:
1. Understanding global and American macro economy analysis to identify a specific direction.
This analysis enables us to understand how major forces and sectors are affecting the performance of the economy. Macro indicators such as GDP (gross domestic product), CPI (consumer price index), PPI (producer price indices), unemployment rate, interest rates, inflation rate, and balance of trade must be carefully analyzed so that we can forecast the next engine of growth domestically and globally. So many questions may arise: Should the focus be on IT, Consumer Products, Bio-technology, Pharmaceutical, and Banking? Should sectors such as Infrastructure, Energy & Natural Resources be avoided?
2. Research on the stocks.
After identifying the general sector to invest, the focus will be on the type of company that best represents the potential of the chosen industry/sector. A few criteria that have been commonly used include:
- Annual Reports & Financial Statements
- Earning growth
- Recent earnings surprises
- Price/earnings ratio
- Debt/equity ratio
- Dividend track record
- Market capitalization & size
- Industry relative strength
- Management Discussion & Management Team Analysis
- Short, Medium to Long Term Corporate Objectives
- Sharia-compliant status
- Competitors competitive analysis
The same principles apply regardless if you are investing in U.S. Stock market or your own domestic market. For instance, if you invest in the European market, you would first need to identify the next engine of growth for the European economy, before you start looking for the best corporations that represent that particular industry or sector in Europe.
There is no guarantee that everyone can identify the next engine of growth or the top companies that can represent the growth potential. What is true today may not be true tomorrow due to social, economic and political changes. A company may change its mission, vision, or values over time; a bestselling product or service could become obsolete over time. Thus, a good investment today may not be so rosy tomorrow, and vice versa.
Successful investing is a journey, not a one-time event, so, you will need to prepare yourself as if you were going on a long trip. And to become a successful investor, you need to constantly keep yourself updated on financial knowledge. At Financial.org, we simply call it, “Lifetime Financial Education”. Or else, you may buy or sell the wrong shares about half the time. Over time, it is likely that you would end up with the wrong portfolio holdings in which the market is up but your portfolio is down.
It is a matter of fact that not too many investors know how to read a Financial Statement. Not everyone knows the relevant information in a Financial Statement that indeed provides a strong hint on a particular share price movement for the coming weeks and months. Even fewer people know how to compare Financial Statements from year to year to determine the market trend.
Our role and functions as an Independent Financial Education Platform is to educate our members with unbiased financial knowledge, concepts and skills. so that they can be better informed and presented with a more neutral perspective of each possibility. On the long run, this will be proven beneficial because scientific analysis coupled with experience gained over time, will supersede luck and chances.
Many FSPs claim to have found the ideal investment solution for their clients and possess the perfect answers to their problems. At Financial.org, we do not believe in the BEST investment. It is our view that the path to a long-term financial success depends on a clear understanding & knowledge of the client himself/herself.
Hence, we see financial education of our members as our lifetime mission.