Assignment 2: You are in the game. Now what?

By William Iven 

For each of the stocks you now own do the following:

1. What is the company’s industry?

  • Will the industry do well in the current economy?
    • Airlines, restaurants, and entertainment stocks are doing poorly due to COVID
      • These stocks should recover as the economy gets going after COVID
    • Internet stocks have done well during COVID
      • Zoom, Amazon, Walmart (online sales are growing), etc.

2. Look at the individual business.

a. Are sales growing each year?

b. Are gross margins above average for the industry? Are they stable?

  • Gross margin is the difference between the sales price (revenue) and the cost of making the product or service. If the percentage changes a lot from year to year the company may be having difficulty selling its products, so they have to discount them.

c. Is net income growing?

  • Is it growing at least at the same rate as revenues?

d. If the answers to a, b, and c are ‘yes,’ you may have a good investment

  • If any of the answers are ‘no,’ that is a potential red flag and you should find out why before investing.

e. Finally, check the news to see if there are any events in the near future

  • Earnings announcement, product release, competing product release, etc.

3. All of the information for #2 can be found on the platform under Research>Advanced Quotes

  • On the left you will find Company Profile, news, financial statements and many other types of information about the market and stocks.

4. For the stocks you purchased

a. If your investigations in #2 are positive

  • Keep the stock, or maybe buy a little more

b. If your investigations in #2 are negative (you wouldn’t buy the stock now)

  • Sell or reduce your position

5. For subsequent purchases run through the same process, being sure to stay diversified

From time to time, apply the process to stocks in your portfolio.

  • If you would not buy the stock when you run through the process, you may want to sell or reduce your position.
  • If you would still buy the stock, keep it or maybe add to your position.

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