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In this video I'll discuss how to evaluate stocks with online broker research tools. Here are the highlights...
OK, so let’s talk about evaluating and buying stocks. For most of my videos thus far, I’ve presented a lot of theory on the various financial instruments you can use to invest such as mutual funds, index funds, ETFs, and of course stocks. What I haven’t yet talked about is the actual hands on process of evaluating stocks when deciding whether or not to buy. Now the process of actually purchasing stocks is pretty straightforward, however determining if the stock is a smart buy, and why or why not is a bit more challenging and requires some thought and a little bit of analysis.
So first off let’s talk about the online broker I will use while showing everything. My go to broker is TD Ameritrade. You could say I am old school, and TDA has been around for a while and I really like its interface and its top-notch research tools. Now I am not sponsored by them and I am not officially endorsing them or anything like that, but that’s what I will be using in all my videos.
The first item of importance here is the bid ask spread. This spread is the difference between the highest price that a buyer is willing to pay for an asset (the bid, representing demand) and the lowest price that a seller is willing to accept (the ask, representing supply). You generally want the bid-ask prices to be close together, as a narrow bid-ask spread ensures that there is a ready buyer or seller for the stock as there is a very close agreement on the price, and the stock is liquid.
Another important parameter is the stock’s volume which is how many shares changed hands during the day. You want to be careful of trading low volume stocks (below 100,000 shares) because you may have a lot of problems selling it in such a small market.
Beta is a measure of volatility or sharp movement of the stock, and anything below a 1.0 means the stock is less volatile than the market, and anything above 1.0 means its more volatile. You want a Beta below 1.0 for buy and hold investing.
Also important is the percentage of outstanding shares that are owned by institutional investors (such as mutual funds, hedge funds, etc.). High institutional ownership percentage is generally a positive sign as these organizations employ teams of analysts and do extensive research before buying a stock, so it is considered “smart money” to invest in what they invest in.
Market orders are filled with online brokers’ in-house systems, and by law, the broker is required to give the best possible order execution that is most advantageous to you, the client. By its nature, a market order does not offer price protection and will execute at or near the current bid (for a sell order) or ask (for a buy order) price, with the priority being speed of execution. In a relatively steady market with widely traded (highly liquid) stocks, choosing to execute via a market order is perfectly fine and will generally lock in the price you saw when pressing the “Buy or “Sell” button, or very close to it.
A limit order is the complete opposite of a market order. Instead of a guarantee to buy or sell, it is completely price driven and is an order to buy or sell at a specified price only. You can see this as the price fill in poos up when you select Limit. In practice this means a restriction on the maximum price to be paid or the minimum price to be received. If the minimum or maximum price target is not reached, the order will not execute, making a limit order a 100% price protection type.
DISCLAIMER
This video was created for informational and educational purposes only, and should not be construed as a source of specific investing, financial, accounting, or legal advice. This video should never be used as the sole source of information, without consulting with a financial or legal professional to determine what may be best for your individual needs. The creator of this video, Elliot J. Gindis, does not make any guarantee or other promise as to any results that may be obtained from using the information in the video. To the maximum extent permitted by law, the creator of this video disclaims any and all liability in the event that any information, commentary, analysis, opinions, advice, and/or recommendations contained in this video prove to be inaccurate, incomplete, or unreliable, or result in any financial or other losses.
