Stocks — Doing Your Homework
Radio Transcript, 2 minutes 20 seconds, for use during week
of Oct. 8.
Description: Penny and Ira discuss researching stocks to
make wise investment decisions.
Ira: We’ve talked about different categories of stocks,
like growth, income and speculative stocks. And the different
risks associated with different categories.
Penny: That’s right.
Ira: My question today is--once I’ve set my goals and
decided to invest some money in the stock market, how do I make
the best decision I can about which stocks to buy?
Penny: You’ll first need to invest considerable time studying
specific companies. You should pick your stocks based on
the underlying value of the company rather than on speculation.
Ira: So I need to look at the finances of the company, not just
the price of the stock?
Penny: Yes. You’ll want to learn more before you
invest. Good stocks tend to stay good so you can take your time
and do your research and learn what you need to know to make
the best decision.
Ira: What kinds of things should I look for? How do I
Penny: Begin with the company’s financial statement. It
may not be exciting but it will contain a wealth of information.
Ira: Are financial statements difficult to get?
Penny: The Securities and Exchange Commission at www.sec.gov provides
these at no cost in their EDGAR database. You can also
get annual reports simply by calling the companies you’re
Ira: Great. And what should I look for once I’ve
gathered my information?
Penny: It’s all in the numbers. From the financial
statements, you’ll have the information you need to calculate
financial ratios, such as price-to-earnings, dividend yield,
and return on equity.
Ira: It sounds like the more I know, the better.
Penny: Absolutely. While it can be tempting to buy stocks
on a whim or a tip from a friend, it really pays to take the
time to gather information, figure the financial ratios, and
make a decision that fits your financial goals. And you
have to ask yourself if you are willing to devote the time. If
not, buying individual stocks is not a wise choice.
Ira: Thanks, Penny.
Penny: You’re welcome. And remember, for more information
visit the ISU Extension website at extension.iastate.edu and
look for Invest Wisely.