An important stock 101 that many investors ignore is doing their stock homework.  This isn’t a rule that only beginner stock investors break, I’ve seen many investors with varying experience continuously break this covenant rule.  They either break it by not doing the right homework or break it by not doing any homework.  So this article will go ahead and try to explain what correct stock 101 homework is in hopes to improve all stock investors. 

First, I’ll need to distinguish between the two basic types of stock investment:  short-term trade and long-term investment.  Usually, short-term trades last for less than 3 months.  With short-term trades, an investor anticipates an event that will benefit the company.  Prior to that event, the investor will purchase the stock and when the event occurs, the investor will sell it after the desired result occurs.  Generally, beginner stock investors stay away from these investments. 

What homework should be done for a short-term trade?  Simple.  Learn everything you can about the event.  You can obtain the information on the company’s website.  There are reports that companies release to give investors better stock knowledge.  Also, listen to their previous quarterly conference call because you’ll be able to find out what they are planning to do with this event as well as the expected benefits to the company. 

You can also get information from the analysts who are covering and promoting the stock.  See how they feel about the event.  Read some of their reports and find out what they are predicting.  These financial analysts are professionals so they are great and reliable sources to obtain stock knowledge, especially for beginner stock investors.

The second type of investment is a long-term trade.  An example of this type of an investment is if you are trying to create funds for your retirement (401K), kids college, etc.  Usually a long term investment lasts at least 6 months and can last until you need to use the fund.  Most beginner stock investors stick to this way to grow their money.

With these types of investment, the stock 101 homework is different.  You don’t research a specific event, instead you research the entire company.  Don’t be specific with the information gathered; stay in general terms so you don’t get confused, especially if you’re a beginner stock investor.  Use the company’s reports to find the company’s information.  Try to find out about their operation, their past, their future and anything else relevant to determining the company’s future performance.  Listening to their quarterly calls can also help you get some great stock knowledge.