Stocks are one topic of much discussion in the financial world, as the daily fluctuations in the market can translate to an easy ride on the track of wealth-building. Sometimes though, it can also result in a Black Tuesday for those less privy to the nuances, or ebb and flow of the markets.
Given all the choice in the market, it can be difficult to tell which stocks are the ones to choose when making your investment. Fortunately, there are some methods you can use to give you an idea. Here, we have an overview of the techniques used to determine which stocks will perform and which ones will flop.

Firstly, though, it is important to note (especially for freshmen investors) that when it comes to the stock market, there is no one perfect way to choose stocks so that they guarantee a return. Many new investors will come armed with a strategy they learned, but when it doesn’t perform they become dejected and give up altogether and take what little remains of their capital with them.

While no one perfect way exists, there are plenty of stocks and tons of ways to look at them. The market is full of variety; far too much to boil down to a perfect science. The reasons for this are:

1. There are too many variables one must consider when gauging a company’s performance. Thus, it is extremely difficult to formulate one single equation that gives you all the answers. It’s generally best to look at a company with a broad scope to guide the insights that formulae present.

2. When looking at a company’s performance, there will always be quantitative data about many variables (such as revenue). There are also qualitative aspects of a company which cannot be expressed with numbers. The quality of the employees, the name brand, the culture and position in the market – all important considerations when looking at a company, and yet no formula exists which can account for such aspects. This simple fact supports the notion that stock picking is much less of a science than it is an art.

3. Besides the depth and scope of evaluating stocks, there exists another market influence that will never be truly predictable – people’s emotions. It is the one factor that can send a stock price into a nosedive, despite a company’s great profits and innovative products. Even if the formulas forecasted a bright future, when investors lose confidence the stock takes on a harsh, risky climate.

These points all add up to the fact that no perfect method for picking stocks exists. Whenever you come across a new approach, you must realize that it is merely an idea, a hypothesis, a “hunch.” Two strategies which completely contradict one another can be shown to both perform well. Although facts and formulas are important when choosing a strategy, you must also consider yourself. Make sure the strategy you choose is within your risk tolerance, and that it agrees with your lifestyle and time devotion.

As you can see, stock picking is something that requires a great deal of thought and consideration. One might even question why anyone would bother with it at all. Of course, it all comes down to making the bottom line bigger. With a trained sense of the stock markets, one might be able to spot the next sleeper stock before it skyrockets. Back in 1986, Microsoft held its IPO. Those investors who were in from the start would have received astronomical returns in the neighborhood of 350 times their initial investment. To put that into perspective, had you invested a mere $1,000, by the spring of 2004 that money would have multiplied into $350,000. It’s plain to see that the pursuit of high return is a lucrative one, and should it be successful, quite rewarding as well.