Statistics show that most retail investors do not profit in the stock market. If you're one of those, have you wondered why? Often, the answer is simply lack of research or the ability to accurately interpret the information in front of you.

Research

Superior stock picking begins with superior research. If you don't know about P/E ratios, balance sheets and basic chart reading, you're gambling instead of investing. The most important step is to do your research.

P/E ratio

The P/E ratio, or Price/Earnings Ratio, is how value is determined. The P/E ratio shows what investors are willing to pay for $1 of earnings. Ask your stock broker for a detailed explanation of the P/E ratio, or read one of the many articles found online to learn more.

Mountains vs. Candlesticks

Chart reading can be very difficult, but much of the information needed for technical research can be understood by the retail investor. You will see charts in candlestick or mountain mode. Stick to the mountain style graphs when you're starting out, since most people are more familiar with those.

Balance Sheets

Look at a company balance sheet. Does the company have more debt than assets? If so, find out why. Are they a new company who is still investing in their growth, or have they mismanaged their money so much that they are borrowing more than they're making? Don't buy stock in this company until you are certain that you have the whole picture.

Your Broker

Online brokers know that a lot of their customers are retail investors who are unfamiliar with the many stock research products available to them. Because of this, most brokers offer research products free of charge, and they also provide helpful tools like automatic interpretation of charts, instant explanation of terms and video tutorials on how to properly research a stock. Become familiar with your broker's website.

Source:

How to research stocks

Stock Analyst Checksheet

P/E Ratio

More Information:

MSN Stock Research Wizard