How To Pick a Good Stock: Basic Fundamentals for New Investors

The Story Behind the Stock

A Stock is not just an electronic symbol traded on the stock market. There is a company behind every stock.
Stock is a portion of a business. Stock is not a lottery ticket. Before you buy a stock you should remember this thing in your mind. When you always buy a stock you buy a fraction of each business.

Why stocks? Whether you are an employee or businessman every month you get paid. You get some paychecks in your bank account, you spend some money on your needs & you have some extra cash after all.
If you have some extra cash in your hand you can invest that money to buy some assets. You can buy gold, bonds, stock, etc.
As small investors I think buying stocks is the most effective way to invest our money.

The purpose of buying stocks is to grow your net worth over time. Buying a stock is complicated activity than most people seem to think. With the development of technology, we can buy stock on a smartphone tablet, or computer within seconds.
There is no effort required to buy a stock, there is no effort to sell a stock. But to do well one needs to understand the underlying business.

The circle of competence is a very important concept. A person like Warren Buffett would consider something like 955 stocks outside his circle of competence. He says that 98% of things that show up on his desk go into a box called the ‘Too Hard Pile’. He can’t figure them out.
Most things are going to be outside the circle of competence of most investors. Once you figure out this business is in my circle of competence you can value it.
To value a business we need to identify how this company makes money. How this company is going to make a profit for the next decade or so? Is the management honest?
After Valing the business investor must be able to buy the stock below the value. We need to buy the stocks for very cheap prices. That is what Ben Graham said Margin Of Safety.