There are more than 600,000 publicly-traded companies in the world with more than 3,000 of those listed on the U.S stock exchanges. With this incredible volume of companies, spread across dozens of sectors and with several permutations of business models, deciding where to invest your money can be overwhelming.
It seems like every day there is some mention of a company breaking out and making its investors tons of profit, while others languish and do not perform as well over time. The media has its darling stocks that it reports on most frequently—but does that mean that they’re the companies that you should be investing in?
There are several methods to use when deciding what companies to invest in, and they’re all pretty simple.
Invest in alignment with your strategy
Setting your investment objectives is a key part of investing and what will ultimately define your strategy. An investor whose objective is long-term growth over decades will have a different strategy than one who wishes to cash out their accounts in 10 years. Define your objectives and work your strategy—or strategies!—out. This will inform your choices.
Value, or bargain, investing pairs well with long-term investment. These value investments will be those made into companies that are undervalued and have a lower stock price. This price could potentially grow once the market realizes the full worth of the company and you come out on top. Of course, not every cheap stock is valuable, just as not every item on a sale rack is a bargain. Sometimes there is a good reason the price is so low.
Growth investing also goes will with a long-term strategy, it just catches the stock on an upswing instead of hoping for one in the future. Growth investors look for accelerating earnings that are ahead of the pack and are predicted to stay that way over a long period of time. P/E Ratios and beta calculations can be used to determine a stock’s potential growth over the long run.
You find a P/E ratio by dividing a stock’s share price by the earnings per share, or EPS, which is simply the total net profits from the last year divided by the total number of outstanding shares.
Income investing is a strategy that involves constructing a portfolio of assets that generate cash payouts. Also called dividend investing, it can be a reliable source of income in retirement. These types of stocks pay potentially high yields and traditionally have more stable stock prices. These are meant for investors looking for income, not growth.
Impact investing refers to investments “made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.” In other words, impact investments provide capital to companies that do business addressing social or environmental concerns. Stocks that qualify as impact investments may fall into any of the objectives mentioned above, it depends on the company itself and how it is running.
Invest in alignment with your lifestyle
As you go through your day, look closely at the products that you use. Who makes your bath supplies? Who services the engine on the bus that you’re riding? Who manufactures the tools you use at work? What company produces your favorite show? Who makes your TV and provides your internet service?
Go with what you use
The answer to all of the questions above is probably a publicly-traded company that you can invest in through platforms like Public. Once you identify products that interest you and are part of your day-to-day, hop online and do some research into the company that makes them. You may be surprised to learn that your humbly-labeled all-natural deodorant is made by a mega-corporation that has dozens of brands in its family, and you use them all.
Go with what you’ve heard of
Coca Cola, McDonald’s, Apple, Berkshire Hathaway. These are the big names that you know and they aren’t going anywhere soon. These blue-chip stocks all have a few things in common: robust cash flows, healthy financials, and stocks that you can own and sleep well at night regardless of the markets’ ups and downs. Blue-chips generally sacrifice some growth potential in exchange for greater predictability and dividend income.
Go with your passions
Are you a hobbyist audiophile with a finger on the pulse of how the music industry is changing? If so you might enjoy identifying companies in music and entertainment to invest in. Public’s stocks and ETFs are organized into themes that align with how you experience the world. Self-driving cars, green energy, and entertainment are just a few of the Themes.
Go with the popular choices
Public makes it possible to learn about what other people invest in and why. Through conversations with other investors, you may encounter the same stock or ETF popping up time and time again. Within a broad community of investors, you can even follow people with professional expertise in different industries (think healthcare, technology, or advertising). This gives you a more diverse view of sector-specific perspectives that can help you better understand how businesses work in worlds outside of your own personal day-to-day experiences.
Invest in alignment with your knowledge level
As a beginner investor, it’s OK to pump the brakes a little and admit that you don’t really know what you’re doing yet. So before you dive in, create a watchlist of stocks and ETFs that you’re interested in. Follow news and updates from those businesses and industries to stay up to date. There’s no shame in lurking. For all of the same reasons that a big part of being a strong writer involves reading, being a strong investor means researching. Learning, tracking, and staying engaged is a large piece of the investment pie. Becoming comfortable with the choices that you’re making releases a lot of the tension that can build up as a new investor as well.
Not sure where to find the stocks? When you sign up for Public, you can take a look at the different themes and explore each company in that group. You can star any of them, marking them as favorites without investing, that interest you and keep an eye on them as part of your daily or weekly routine. ETFs are listed the same way and are traded just like stocks.
Public also gives you context around stocks and ETFs. Read the quarterly reports, get a temperature on what Wall Street thinks of each holding, and get buying and selling advice from people in your network.
The bottom line
Finding companies to invest in really depends on your strategy, which is defined by your objectives. So start there. Invest in what you know, and expand your understanding of adjacent sectors and industries by getting exposed to conversations others are having using the social feature on Public. Discovering companies that interest you and are aligned with your goals begins with research.
There is no perfect approach to investing, so instead shift the focus to what is right for you. Change the focus to one of education and discovery in the pursuit of what works for your strategy.