Picking stocks

First of all it is recommended that an investor should have a portfolio of stocks, having no more than 3% of total capital in each asset (i.e. stock). The rationale for this is risk reduction. That means that there should be at least 30 stocks in portfolio. Also, stock should be diversified among different industries.

It is impossible to determine if price of a certain stock will rise or not. However, there are several strategies that can be used to find appropriate stocks. These strategies doesn't provide 100% success. The key stone of the each strategy is to somehow determine intrinsic value of the stock. Intrinsic value is basically calculated using fundamental parameters: Earnings per Share – EPS, Price to Earnings Ratio – P/E, Projected Earning Growth – PEG, Price to Sales – P/S, Price to Book – P/B, Dividend Payout Ratio, Dividend Yield, Book Value, Return on Equity. It is necessary to check all of these parameters and of course there are other factors such as management.

Completely different approach to picking stocks is technical analysis. Technical analysis is based on market history of a given stock. Technical analyst beleive that based on historical data they can determine if a certain stock is going up or down.