I want to start investing!.. Where do I start?

Education

“The best investment one can make”

Before you start investing your hard earned cashed blindly, whether it was from working, inheritance, or theft, remember that obtaining those dead presidents was the easy part. If you are not willing to learn the fundamental part of the game, you might as well buy a lottery ticket, or put your money in a mutual fund.

Here is a quick review of how to see if a company has good fundamentals or not. Most of this should make sense to you.

Income Statement - Apple's Income Statement

- Examine the company’s ‘Gross Profits’ year over year. The company’s ‘Gross Profits’ should be growing every year. (Who wants to invest in a company that has lower profits year after year?)

Balance Sheet – Apple’s Balance Sheet

- Examine the ‘Total Current Assets’. The total current assets should be rising every year like the ‘Gross Profits’ in the Income Statement.

- Scroll down to inspect the ‘Long Term Debt’ and to a lesser extent ‘Short Term Debt’. The company should have enough ‘Total Current Assets’ to cover all of the ‘Long Term Debt’, but in Apple’s case, they have 0 debt. (We check this to assure the company is not a candidate for bankruptcy.)

Analysts Estimates – Apple’s AE

- Look at the ‘Earnings History’ and see if the company’s earnings have been beating estimates. Though earnings can be unpredictable, I have found that a company that beats their earnings regularly is a very good sign.

- It is important to check the ‘EPS (Earnings per Share) Trends’. See if the estimates have been rising or shrinking. If the ‘EPS Trend’ has been rising, this is considered a good sign.

- Scroll down to ‘Growth Est.’ and look at growth for the next five years (we’re thinking long-term here). If the company has +20% growth, we’re dealing with a fast grower, which usually give you the best return over time.

Now, just because a company doesn’t have high growth does not mean it has poor fundamentals. For example, look at Coca-Cola’s AE. Notice that they only have about 9% growth. Though coke is what we would consider a ‘slow grower’, they have done quite well this year (up about 22% since the same time last year). You can use the company’s five year growth to determine what type of company you’re dealing with (whether it’s a fast grower, slow grower, stalwart, etc.), but we’ll talk about that later.

By looking at these three pages you can get a basic understanding of what kind of company you’re dealing with and its financial shape. This is just scratching the surface in analyzing a company, but it’s a good start.

Recommended Reading:
'One up on Wall St.' by Peter Lynch
'Beating the Street' by Peter Lynch
Here is a link for some other good suggestions.

Check back tomorrow! I will discuss the P/E Ratio in part II of this 'Education' segment.