Ep. 5 - How to read a stock before you buy?🕵️ Welcome back to Investing for Newbies 🤓 where we learn about investing from the ground up 🌱 Not financial advice. Past performance does not predict future returns. Capital at risk when investing. #investing #PersonalFinance #investingforbeginners #financeeducation

I will never make the mistake of buying a stock without checking these five things first. Welcome back to investing for newbies, where we learn about investing from the ground up, the theory, the practice and everything in between. So the first thing you should check is what sector does the stock belong to. There are two main types. Defensive sectors where companies provide goods and services that everyone needs no matter what is happening with the economy. So think healthcare, utilities and essentials. They usually have lower growth potential but they are recession proof. And then you have cyclical sectors which are a lot more exciting like technology, travel and luxury goods. They have high growth potential and they are great when the economy is doing well, but they are also a lot more volatile and can drop rapidly. So high risk high reward. Then we have market cap. The price of a share alone will tell you almost nothing. The market cap is the total value of a company's outstanding shares. So essentially the size of the company on the stock market. There are four different tiers that a stock can fall into and each of these carries a different risk and return profile. Next one is the price to earnings ratio. This one tells you how much investors are willing to pay for every one dollar of profit a company makes. If the company is lost making, then the P ratio will be usually shown as non applicable. A PE of 10 to 25 usually suggests a slow predictable growth. Half 25 means investors are expecting significant growth in the future. If high growth is expected and it is calculated into the share price, then the price can drop dramatically if the company misses its targets. That's why quarterly results for tech stocks are watched so closely. The dividend yield is the annual percentage the company pays you for holding the stock. When you hear someone talking about income stocks, they mean investing into stocks that pay out dividends. And finally check the current share price against the 52 week high and low. Now I don't like looking too closely at past performance because it's not a good indicator of future performance, but it's still worth knowing the context. So those are the five key things to check before investing into a stock. If you found this useful, follow for episode 6 because we're looking to how to read an ETF.