Five Ways To Spot A Good Investment Opportunity

how to find smart investment opportunities

The only thing that can be said for sure about investing in stocks or shares is that you'll never be short of choice. There's always something new to invest in, and there will always be somebody trying to convince you that the stocks or shares they're offering are the new Apple, Facebook, Amazon, or Google. Very rarely, they'll actually be right. More often than not, though, they'll be either incorrect or lying. Anyone can invest money in something if they have money to spend. Far fewer people ever turn those investments into a profit. 

You might have heard comparisons between investing and gambling in the past, and it's not an unfair comparison to make. No matter how well or badly a stock has performed in the past, its future is never guaranteed. Just like playing a bet on a game at an online slots website, you're risking your money in the hope that it will come back to you with added profit. Also, like those Blueprint slots, the process by which that money might or might not arrive is often unknowable. At least online slots have the good grace to provide you with a "return to payer" rate, so you have a rough idea of what your chances of a return are. With stocks and shares, often you have no such idea! 

We don’t want to put you off the idea of investing, though - quite the opposite. We want to give you a few pointers that might indicate when something is worth investing in, or at least worth examining in closer detail. We’ve come up with five such pointers, and here they are. 

The Company Is Buying Back Its Own Shares 

You might have seen this listed elsewhere as a bad sign, but more often than not, we think it's a good sign. There's some extensive analysis you can read elsewhere if you want more information on this issue, but in our experience, we find that companies who buy back their own shares in large numbers are doing so to boost the profits of their shareholders. If you were one of those shareholders, you would directly benefit from that process. A company that's buying its own shares is also clearly demonstrating that it doesn't have a current need for external investment, and that's a positive sign in terms of its future prospects. Be wary if they've done it repeatedly in the past few years, but once or twice a year could be a green light instead of a red one. 

A Strong Average Stock Price 

Prices go up, and prices go down. No stock or share is immune to this, but when you're looking at a vastly inflated or reduced figure in isolation, it's misleading. You should never make an investment decision based on the number that a stock or share is trading that on that particular day or that specific hour. You need a better perspective on how the stock performs over a more extended period of time; ideally, a full year. A company that's confident about its stock performance might even list this information on its own website, and it's generally a good sign when it does. If you're having no luck finding the figure, though, NASDAQ records detailed historical data on its website, as does Yahoo Finance and other sites. As a rule of thumb, dividing the current price of the stock by the last four quarterly 'earnings per share' figures should give you a value of at least fifteen. If it doesn't, there might be an underlying issue with performance. As with everything else we're detailing on this page, this is information rather than advice, but a score lower than fifteen generally wouldn't be considered good. 

A Clear Company Balance Sheet 

The performance of a company’s stock isn’t everything. Sometimes, a good quarter or two in terms of stock price can mask the fact that a business is riding for a fall. If it is, you might be able to see it on the company’s publicly-listed balance sheet. Is the company making money while the stock is performing well, or are they barely breaking even? Is there a worryingly high expenditure item that could indicate a hidden issue? How does their income and expenditure compare to other companies that work within their industry? These are all questions you’d benefit from knowing the answers to before you make any decisions about investment - so don’t be afraid to go looking for the answers. 

An Understandable Business Model 

Before you spend your money, have you asked yourself what the company you're about to invest in actually does? Do you understand their business model? Do you have an idea of what market factors might impact them negatively, and which might affect them positively? As the old saying goes, knowledge is power. The more you know upfront, the more likely it is that you'll be able to anticipate changes in the future. That includes quickly dumping your stock if you can see something coming on the horizon that will affect the value of your holding. A business model doesn't have to be complicated to be thorough, though. In fact, the simpler the business model is, the easier it often is for that company to expand. You're not looking for complexity; you're looking for clarity. 

Clear Signs Of Long Term Prospects 

Right now, you could be forgiven for thinking that something like TikTok would make a good investment. Millions of teenagers all over the world use it, it's popular with celebrities, and it's full of influencers. The company is making a lot of money, and presumably, everybody involved with it at an ownership level is cashing in. That still doesn't make it a good investment, though. In all likelihood, TikTok is a fad, and fads are never worth investing in. Although it is possible to make a 'quick buck' in investments, people who've made millions out of the markets generally took their time to build up their holdings. That means investing in companies for the long haul, and watching the value of your shares in them grow over five, ten, or even twenty years. In practice, this usually means avoiding 'here today, gone tomorrow' shooting-star stocks and sticking to safer, more reliable holdings. They might be comparatively boring, but they pay much better in the long run! 

Consult With An Investment Professional First

As one final piece of advice, we’d like to remind you that you should always speak to a professional before investing in anything. Everything we’ve outlined above is a pointer. A professional can take those pointers and turn them into a plan that suits you. Good luck investing, and happy trading!