Simple questions to ask before buying new stock

Fear and greed are the two main emotions that govern investors' decisions to buy or sell stocks. Relying solely on these emotions and constantly reacting to breaking news may drive investors to losses and missed opportunities. To minimize that risk, it's important to spend some time delving deeper into the companies themselves. Below are the key aspects worth checking before you decide to buy stocks. This will give you more clarity to make a reasonable purchase. If you find positive answers to the majority of these checks, the chances that the stocks will skyrocket someday are much higher.

Products

Whether it’s a startup or a big company, it’s always worth looking into the company’s products. Spend some time checking what products the company is offering and compare them with competitors. The questions below will help you understand whether the company’s products are attractive to customers.

- What products does the company offer/plan to offer?
- What is the quality of these products?
- What real value/benefits do the products bring to their customers?
- How do these products compare to competitors' offerings?
- Are the products innovative, or are they market followers?

Customers

There are always challenges with customers, such as customers not always wanting to buy the product, customers wanting the product but finding it too expensive, or the products not fulfilling their needs. To understand the customer base better, consider these key questions:

- What group fits the buyers of the company's products?
- What is the remaining potential to sell these products?
- Are these customers willing to pay for the company’s products/services long-term?
- Do these target customers have enough money to spend on its goods?

Company performance

Understand how the company is performing and whether it is on track.

- What is the business model of the company?
- What are the operating incomes of the company?
- What are the current, previous, and estimated revenues of the company?
- What growth potential does the company have?
- What competitive edge does the company have?
- How much money does the company spend?
- Check company and analyst forecasts.
- How many employees does the company have?
- How much money does the company have on hand?

Strategy, Vision, and Roadmap

This is an important aspect, especially for value-growth companies. You really want to see their future.

- What is the long-term vision of the company?
- What is the company's strategy for growth?
- What is the company’s roadmap for the next quarter/year for its future products?
- How do competitors compare in terms of vision, strategy, and roadmap?
- Are the company's plans realistic and achievable?

Your Self-Belief

Sometimes, all the numbers may look good, but your intuition might say otherwise. Before buying, it’s important to assess whether you honestly believe in the company.

- What is your opinion about this company?
- Do you like the company and its leaders?
- Would you use this company’s products yourself, or would you choose something different?
- Do you believe that the company’s vision and strategy are great?
- What would you do if stocks fell by 10%, 20%, or 30%? Would you still hold them?

Company Leadership

Steve Jobs, Bill Gates, and Elon Musk are just a few examples of strong company leaders whose brands are tied to their names. Such leaders are not afraid to take responsibility for the entire company and build relationships with their customers. If you can find more leaders of this caliber, it’s even better. Consider these:

- Who is the company’s management?
- Does the company have a strong leader?
- Do you like the company’s leader/management?
- Is the leader inspiring? Will people follow them?

Politics and Laws

Politics and laws can quickly change the playing field and turn everything upside down. Consider what kind of relationships the company has with politicians and governments. For example, U.S. politics may strongly oppose something, or new laws (like GDPR) may require operational changes.

- Review the political situation (e.g., TikTok ban in the U.S.).
- Check what new laws are coming into effect in the operating countries and whether they impact anything.

Brand Image

It’s no secret that brand image plays an important role in selling products. There might be two products with exactly the same technical characteristics, yet people will still choose the one with better brand recognition.

- What values do you associate with this brand?
- Do people like this brand and associate their lifestyle with it?
- What values does the brand stand for?
- Is the brand image stable, or is it constantly changing?
- Are people loyal to this brand?

Stock Performance

I left this point last because, once you have answers to the above questions, you will have a better idea of how to evaluate stock performance.

- Is it fair value to buy this company?
- Compare how competitors’ shares are valued. Is it cheaper or more expensive?
- Check past growth numbers.
- Do the stock market trends correlate with the company’s financial and growth metrics?
- What do other investors think about the stock?
- What is the volume of shares traded currently and in the past?
- What is the previous EPS?
- Check company and analyst forecasts, and consider whether their arguments are strong.